Financial Data
Updated 29 Feb 2020

Why huge success can be your greatest enemy

Market leaders are in the best position to grow their businesses because of their large capital, rich talent pool, and intimate knowledge of the market. But, throughout history key companies have stumbled, declined sharply, or gone bankrupt due to a failure to innovate.

27 September 2014  Share  0 comments  Print

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Robin Sharma terms it ‘icon decline’, and advises leaders to avoid the arrogance of success. “Nothing fails like success,” says Sharma. “Success causes complacency; you stop learning and start taking your customers for granted.”

How can you turn your business success into your biggest asset?

Inspire a culture of internal innovation

In his book, Unrelenting Innovation, Gerard J. Tellis says staying on top requires a ‘culture of innovation’, including an appetite for risk, an eagerness to reward fresh thinking, and a focus on the future, not the past.

Tellis and his colleagues studied 770 companies across 15 countries. The researchers found that success over the long haul isn’t a matter of size, number of patents, or the dollar amount of R&D investments.

When faced with decline, most companies tend to cannibalize successful products in a bid to improve profits, but Tellis’s research showed that “buying firms for their innovations leads to a consistently negative spike in the stock price of the acquiring firm,”.

The opposite, though, was true for shares of companies that grew their own innovations in-house: “The market rewards internal organic innovation and punishes external acquisitions.”

Focus on the real problem

In a large research project devoted to business failure, Sydney Finkelstein and his team of Dartmouth associates conducted a six-year, in-depth examination of 51 companies, in an effort to find what led to business failure. 

Finkelstein discovered four major failed-executive themes:

1. Executive mind set failures

In all 51 companies the key decision makers saw the failure coming, but they got the strategy wrong.

Businesses must avoid the thinking of ‘If it’s important for us, it’s important’. You’re in for trouble when attention is diverted from solving customer problems to focusing solely on the company itself.

2. Delusions of a dream company

Internal attitudes made it impossible for anyone to raise his hand and say, ‘We’re wrong.’ Mistakes went unchecked. Blind adherence to ‘positive thinking’ without an open mindedness to what is really happening within a company will lead to organisational failure

3. Organisational Breakdowns

In the 51 companies surveyed the companies didn’t carry out operations badly; rather, they carried out the wrong operations.

Take, for example, incentives: In most cases strong performance motivators they are tied directly to productive actions, but when taken to an extreme can have a reverse effect; they can result in counterproductive actions.

In the companies Finkelstein researched, incentives were often abundant and anti-innovative.

4. Leadership pathologies

Nearly all the leaders who presided over major business failures exhibited five or six bad habits.  

What was remarkable was that each habit was a quality that is widely admired in today’s business world. But they also equipped the executives with the gift of taking what could have been a modest failure and turning it into a gigantic one.

Five bad habits to avoid:

  • The belief that belief that you and your business dominated the world, you’re bigger than life, and can do anything.
  • Identifying too much with your company. Deep identity ties, as well as a fuzzy boundary between company and self, encourages you to make unwise corporate decisions
  • Pushing for fast closure without considering ramifications. You can’t possibly give the ‘right’ answers because you haven’t taken the time to understand the problems.
  • Because it worked before, don’t be tempted to think were inclined to think that it will work now and in the future. Failing to consider innovations in technology, product delivery, infrastructure and market expectations will lead to your business demise.
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