“Understanding the underlying forces that turn success into failure”
The following thoughts are extracted from Jamshid Gharajedaghi’s book, Systems Thinking: Managing Chaos & Complexity (Pub. Butterworth-Heinemann. 1999) (buy it online at Amazon.com or Kalahari.net).
When the Dow Jones Industrial Average marked it 100th anniversary in 1996, of the original companies listed only General Electric had survived to join in the celebration. Fourteen of the 47 companies exemplified in Tom Peter’s much acclaimed book of the 1980’s, In Search of Excellence, had suffered serious profit erosion within four years.
Everyone can recall cases of great powers, nations, organizations or personalities rising and falling. What then are the underlying forces that convert success to failure?
Gharajedaghi’s suggests that there are five forces that form a hierarchy with each level representing a distinct tendency, but together forming an interactive whole. At each level success plays a critical but different role.
Level 1: Imitation
This is the most basic force. Competitive advantage is by definition a distinction. Successful distinctions, in time, are eroded by imitation. At that point, exceptions become norms and lose their advantage. An example of this from the world of sport would be how the Sri Lankans redefined one-day cricket the year they won the World Cup. They established new benchmarks for the 15 over target and creatively employed “pinch-hitters” up the batting order. Other teams were quick to imitate, match and in time surpass these initiatives.
Level 2: Inertia
Inertia is responsible for behaviors that delay reactions to technological breakthroughs. Ironically, the likelihood that an organization will fail to respond to a critical technological breakthrough is directly proportionate to the level of success it had achieved in a previously dominant technology. Stated another way, the more success an organization has had with a particular technology, the higher is its resistance to the prospect of change.
Level 3: Suboptimization
Exaggeration, the fallacy that if X is good, more X is even better is at the core of this level’s processes that destroy proven competitive advantage. A tendency to push one’s strength to its limits transforms the strength into a destructive weakness. The winning formula gains adulation and those who shaped it are entrenched as the sole authorities. One right answer prevails.
Level 4: Change of the Game
The act of playing the game successfully changes the game itself. To borrow once more from the cricket world, one only has to observe how the current Australian side is transforming how test cricket is played. Failure to appreciate the consequences of one’s success and tenacity in playing the good old game are what tragedies are made of. Once success is achieved or a problem is effectively dissolved, the concerns associated with that problem are irreversibly affected. Dissolving a problem transforms it and generates a whole new set of concerns. Henry Ford’s success in creating mass-production effectively dissolved the production problem. This changed the competitive game from concern for production to concern for markets, which required an ability to manage diversity and growth. Ford’s refusal to appreciate the implication of his own success and his unwillingness to play the new game (“They can have any colour as long as it is black”) gave Alfred Sloan of GM the opportunity to dominate the automotive industry. Of course the story doesn’t end here (the same oversights allowed Japan to later dominate the industry) but the point is made concerning the change in the game.
Today, competitive advantage is increasingly shifting away from having access to information towards generating knowledge and, finally, towards gaining understanding. Intellectual capital is the future.
Level 5: Shift of Paradigm
The cumulative effects of imitation, inertia, suboptimization, and change of the game ultimately manifest themselves in a shift of paradigm. A shift of paradigm can happen purposefully, by an active process of learning and unlearning (always a difficult thing to do!). More commonly however, it is a reaction to frustration produced by a march of events that nullify conventional wisdom. Shifts in paradigms can happen in two categories: a change in the nature of reality or a change in the method of inquiry. It is possible to have a dual shift involving both dimensions. We are now facing the challenge of a dual shift. Not only has there been a shift of paradigm in our understanding of organizations (Newton / mechanical to Quantum / biological) but there has also been a shift regarding our assumptions regarding the method of inquiry (from analytical thinking – dealing with independent sets of variables; to holistic thinking – the art and science of handling interdependent sets of variable).
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