Organizational Culture

“Why Good Companies Go Bad:” How the Flurry of Busy Work Can Doom Your Growth Vision

Bad companies From my many years of work helping organizations reverse stagnation and decline, one thing became clear. It wasn’t lack of effort or, in many cases, vision that prevented growth. In fact, these organizations had made considerable investments in their improvement and had escalated activities across the board—from new product development, to marketing campaigns and strategic planning. Yet this flurry of activity was frequently counterproductive. Leaders were spread so thin with endless initiatives and busy work that they were unable to do what it would take to turn things around: take the time to think strategically, deconstruct the assumptions that drove them and truly re-think the core foundations of their business and formulas for success.  In a 1999 Harvard Business Review article, Donald Sull calls this state of frantic activity “active inertia” and considers it the reason “good companies go bad.” “The problem is not an inability to take action,” he says, “but an inability to take appropriate action.”   His examples of “inappropriate” action are companies which, while recognizing threats and mapping the right strategies, were unable to break out of the old ways of thinking and doing things. As a result, the flurry of activities they unleashed drained resources without bringing about effective results. This is what he calls “active inertia:” …an organization’s tendency to follow established patterns of behavior—even in response to dramatic environmental shifts. Stuck in the modes of thinking and working that brought success in the past, market leaders simply accelerate all their tried-and-true activities. In trying to dig themselves out of a hole, they just deepen it. Take Firestone as an example, a company that had “enjoyed seven decades of uninterrupted growth” until the 70s when Michelin, introduced the radial tire to the U.S. market. While Firestone assessed the threat correctly and began producing radial tires in a timely fashion, it was caught in the old ways of working and thinking. For example: Rather than redesign its production processes, it just tinkered with them—even though the manufacture of radial tires required much higher quality standards. In addition, the company delayed closing many of its factories that produced bias tires, despite clear indications of their impending obsolescence. Active inertia had taken hold.  In 1988, the company was acquired by Bridgestone, a Japanese company.    The article lists 4 “transitions” by which once successful formulas harden into dogmas that are too inflexible to adapt to changing environments and, hence, hinder growth and renewal. If they ring a bell for you, it’s great news. There is something you can do to stem and reverse the process of active inertia. Strategic frames become blinders. Strategic frames are the mental models through which we see the world—our view of what business we are in; who our customers are; and how we create value for them.  How many opportunities are lost on a daily basis because of mental models for what an association is or does that are frozen in time: “We are supposed to have this bundle of benefits. We are an association.” “We can’t respond to members’ need for consultative-type solutions. We are an association and not a consulting firm (or for-profit or educational institution or peer collaborative etc.)”. In my book the Demand Perspective there is an entire chapter on the mental models that prevent growth and renewal in associations.  Processes harden into routines.  Sull cites McDonald’s as an example. In the 1990’s, when consumers demanded healthier food, competitors, such as Burger King, were able to quickly respond to the demand through expanded and flexible menus. McDonald’s was slow to respond. Up to this point, its strength was its ability to refine its mass-production processes. But this process, which required decisions to get approval from headquarters, became a detriment to the speed, flexibility and adaptability required in constantly introducing and testing new menu items. The new products McDonald’s introduced through the old process failed.  Come on! Surely this rings a bell! How effectively can associations, with their layered approval processes, respond to fast moving markets; markets that require speedy responses and learning by “doing” through constant market testing and adjustment rather than the formal, strategic planning and internal design processes associations use?   Attachment to existing “ways of doing things,” has been perhaps the greatest obstacle I have encountered in helping associations re-invent themselves and grow. In spite of embracing a new vision and longing for change, most are unwilling to replace routines with new ways of doing business to get there. Relationships become shackles. Relationships of course are the heart of a business but they can sometimes become “shackles” when they blind an organization to the changing value of existing relationships and needs for expanding beyond them. “The need to maintain existing relationships with customers can hinder companies in developing new products or focusing on new markets,”  Sull warns.  For many associations, their attachment to a winning formula that worked in the past—product mix, membership model, assumptions of value—is reinforced by a core membership that is already sold on this formula. In other words, rather than adapt to changing customer needs, it is tempting to cater to customers whose needs and preferences fit your existing products.  The problem is that by focusing on this rapidly decreasing segment, you ignore the margins of professions and industries where innovation takes place and which are rapidly becoming their present and future.     Values harden into dogmas.  Values and beliefs drive a company’s culture and orientation and can become sources of inspiration and identity.  Yet when they become unexamined dogmas, they pose formidable obstacles to adaptability, innovation and change. One such value for association is the non-profit status that most enjoy.  Instead of viewing it simply as a tax category, it has become a badge of honor and an important part of the definition of “association.”  It fuels an unhealthy and arbitrary differentiation – non-profits are inherently noble and superior to business that is inherently ignoble; and brings about isolation. Instead of looking at patterns in the knowledge service industry, technology and consumer behavior across sectors, many associations look to each other for best practices and view members as a distinct breed of humans, unaffected by the market forces that apply to other consumers.    The author’s conclusion is especially useful to leaders as they contemplate how to lead to address challenges and drive to a next phase of growth: They need to realize that action alone solves nothing. In fact, it often makes matters worse. Instead of rushing to ask, “What should we do?” managers should pause to ask, “What hinders us?” That question focuses attention on the proper things: the strategic frames, processes, relationships, and values that can subvert action by channeling it in the wrong direction.