Is Company Failure Inevitable?
NEW
BOOK: Companies don’t generally fail because of
competition; it’s out-of-touch leadership that kills them.Lead and
Disrupt coauthor Michael L.
Tushman discusses how companies must continue to
invest in their core products while innovating in new areas.
·
AUTHOR
INTERVIEW
What Kills
Companies?
Interview by Dina Gerdeman
The vast majority of businesses in the United States kick the
bucket before they reach middle age. Less than 0.1 percent of firms founded in
the US make it to the age of 40. And among firms founded in 1976, only 10
percent were still going strong a decade later.
Large, long-successful companies are clearly not immune to
perishing, either. Polaroid, founded in 1937, dominated the market for instant
photographs and was also one of the first companies to invest in digital
imaging, yet the business closed in 2008. In 1955, RCA was almost twice as big
as IBM and was viewed as having better technology, yet by 1986, it was
pronounced dead.
And the list of bankrupt or deceased giants goes on: RadioShack,
General Foods, Blockbuster, Borders, Circuit City.
Why did these once world-beaters succumb? A new book, Lead
and Disrupt: How to Solve the Innovator’s Dilemma, says
that while each of these firms has a unique sinking-ship tale to tell,
they all flopped for essentially the same reason: They suffered from a failure
by leadership to grapple with changing technologies and business markets.
“The leaders of these companies were rigid in one way or
another—unable or unwilling to sense new opportunities and to reconfigure the
firm’s assets in ways that permitted the company to continue to survive and
prosper,” write authors Michael L. Tushman, the Paul R. Lawrence MBA Class of
1942 Professor of Business Administration at Harvard Business School, and
Charles A. O’Reilly III, the Frank E. Buck Professor of Management at Stanford
University’s Graduate School of Business.
The authors, who have spent more than a decade helping companies
innovate, say business leaders can dodge failure by adopting an “ambidextrous”
approach—continuing to invest in their existing products or services while at
the same time striving to adapt and grow by innovating in new areas.
Some firms have pulled off this tricky balance. IBM was founded
in 1913 as a maker of mechanical tabulating machines and today is a $100
billion company that earns 85 percent of its revenue from software and services
that didn’t exist 50 years ago. Amazon, which started out selling books online,
is now the largest web retailer and a major player in cloud-based utility
computing.
Tushman, who has co-written a piece called The Ambidextrous
CEO for Harvard Business Review, says companies can achieve
long-term success if their leaders take a careful, deliberate approach to
nurturing their current successes while also investing in innovative prospects
for the future.
Dina Gerdeman: Can you explain how some companies are trapped by
their own success in a way that reduces their ability to innovate?
Michael Tushman: The things that help organizations execute
their current strategy—the cultures they build, the structures they forge, the
processes that work so well to get today’s strategy executed—actually collude
to hold the organization hostage to that soon-to-be-obsolete strategy.
The more firms engage in getting today’s work done, it actually
reduces the probability of making shifts in innovation and strategy. That is
what is so strikingly paradoxical to leaders: The very recipes that work so
well for today often get in the way of the future. It’s a challenge to
incrementally improve what you’re doing as you’re trying to complement it with
something different. The dual strategies are inconsistent.
For example, look at The New York Times right now: If
you want to execute a newspaper and simultaneously digitize development and
distribution of content, those are orthogonal strategies. It’s that duality that
is so hard.
Gerdeman: In recent years, a number of once prominent firms have
run into trouble, including Polaroid and Kodak. What was their biggest mistake?
Why do you think these companies failed to remain competitive?
Tushman: If we stick with Kodak or Polaroid, one, they got
stuck. The senior team had a too-narrow view of the strategy. They got
overwhelmed by the inertia, by the processes, people, culture, metrics, and
measures. They got overwhelmed by the short term. Point two: When they tried
digital imaging, as Kodak and Polaroid did, they tried to push their existing
organizations to execute a discontinuous innovation. The second error was not
separating the future from the past.
The biggest issue we have found is that it’s hard for a leader
and his or her team to deal with this paradox. It’s easy to do either exploit
or explore. The biggest mistake I see in senior teams is their inability to
deal with contradiction and so they default to one or the other.
The biggest problem they have is answering: Who are we, and what
do we do? Senior leaders often do not attend to this identity question. They
close their eyes to what’s going on in the world. Highly inertial organizations
code an innovation as either not important, it’ll go away, or it’s fundamentally
the same as what we’re doing now.
Ball Corporation was able to move from a wooden bucket company
to a glass jar company to a metal can company to a plastic bottle company. What
held the organization together for more than 100 years was its overarching identity
as the world’s greatest container organization. Without an overarching
identity, the reality of today trumps the future. In my work with
organizations, probably the most challenging piece of work is to help leaders
articulate a strategy with this notion of different kinds of innovation, to
help them grapple with who they are and what they do.
Gerdeman: A lot of companies say they’re customer-focused, but
are overly focused on specific skills.
Tushman: Organizations get trapped by their existing skills and
capabilities. The challenge for the senior team is to get new skills. You get
new skills by acquisition and training. The leadership team has to build an
organization to host multiple, often inconsistent, skills simultaneously. The
challenge for our leaders is not to negate the skills from the past, but to be
proud of that, celebrate it, and build these new skills that will help the
organization get to the future.
Gerdeman: You say this is a leadership issue first and foremost
since many failed firms have the technology to succeed, but their leaders don’t
see the landscape that would allow them to capture value from it, right?
Tushman: Yes. At the end of the day, this is a book about
leadership. It’s about the leader’s ability to build teams and organizations
that can host contradictions and paradox. These ambidextrous organizations
celebrate the past and create the future. This is a leadership book about
leaders who can walk into paradox and be able to thrive in contexts that are
seemingly inconsistent. Every senior team I work with has to do strategy.
Rarely do teams take seriously this issue of identity. This identity thing is a
bit more important than strategy. Once you get the identity, then you can be
strategically flexible.
Gerdeman: Organizationally, how should a company go about both
exploiting current assets and exploring new ones?
Tushman: The explore unit has to be physically separated,
culturally separated, and staffed and rewarded separately from the exploit
side. If integration is done too soon, the exploit unit typically crushes the
firm’s exploration activities.
What we have found is that when the explore side gets legitimacy
with customers and gets legitimacy in the firm, that’s the time you integrate
it. So once the explore side demonstrates that hey, this works, then it’s drawn
in by the exploit side.
At USA Today, when the dotcom business got to be successful
with customers, had a viable strategy, and was making money, then they
integrated the explore with the exploit. As soon as the exploit side codes the
explore side as complementary, rather than a substitute, this works very well.
So you keep them separate until you can develop a plan for integrating the two.
Gerdeman: What is necessary for successful ambidexterity?
Tushman: You need a senior team that gets the strategic
importance of an overarching identity, the notion that: “We want to be the
world’s greatest container corporation.” Those most effective ambidextrous
organizations get identity on the table fast. Once you do that, it is then
possible to host internally inconsistent organizational architectures to
explore and exploit and to build linking mechanisms that help the firm leverage
common capabilities. Finally, this overarching identity helps the senior team
articulate the importance of the firm’s future and its past as well as build an
overarching culture that can handle paradox.
If you just do identity without the structure or if you just do
the strategy without the identity, it doesn’t work. In terms of the pragmatics
of doing this, the senior teams need to talk. The secret sauce is dialogue:
Articulate the vision and the strategy and talk about the challenges in doing
it. In every single negative example, it’s because the leadership team doesn’t
have the ability to talk about and adjudicate and deal with the challenges of
contradiction.
The reason explorers get squashed is that the powerful side of
the organization crushes the future. They crush it because fundamentally, the
senior team doesn’t get the strategic importance or paradox; of being
consistently inconsistent.
Gerdeman: I imagine you’re hoping business leaders will read the
book and come away with the belief that they can indeed prevail in the face of
disruption?
Tushman: Yes, it’s relatively easy to do once you have the
cognitive complexity and senior team capabilities to do it. It’s really a
leadership challenge.
If 90 percent of organizations fail at these transitions, our
hope is that the number goes to 70 percent. If you’re up for the challenge, we
know this recipe works.
· http://hbswk.hbs.edu/item/is-company-failure-inevitable?cid=spmailing-13516943-WK%20Newsletter%2009-28-2016%20(1)-September%2028,%202016
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