The opening line of the best selling business book of all time is as succinct as it is true: “Good is the enemy of great”. Jim Collinsâ€™ 2001 bestseller, “Good to Great” explains how most companies never become great because they are already good. They have become prisoners to their past â€“ not feeling any need to push boundaries, innovate, prepare for the unexpected, stretch themselves or make necessary changes to ensure sustainable success. Dr Graeme Codrington argues that this is a recipe for disaster, that only future-focused leadership – who have the guts to look forward and not back – can avert.
(First published, under a different title, in the May 2007 edition of HR Future).
The opening line of the best selling business book of all time is as succinct as it is true: â€œGood is the enemy of great”. Jim Collinsâ€™ 2001 bestseller, â€œGood to Great” explains how most companies never become great because they are already good. They have become prisoners to their past â€“ not feeling any need to push boundaries, innovate, prepare for the unexpected, stretch themselves or make necessary changes to ensure sustainable success. In the 21st century, this is a recipe for disaster, that only future-focused leadership can avert.
It is increasingly obvious that we live in an age of discontinuous change: disruptive technologies, globalisation, international capital flows and unexpected competition â€“ to name but a few more obvious forces – all combine to put pressure on todayâ€™s companies. In such an age, the easiest way to fail is to focus energy on simply trying to improve your current successes. Even doing what you do best might not be enough in a world where similar companies sell similar products to the same customers through similar channels at similar prices. The only lasting competitive advantage â€“ one that cannot be copied easily â€“ is your people, and the culture and ethos that attracts and retains the best and brightest in your industry.
Unfortunately, in this age, many Chief Executives remain obstinately operationally focused, and only a tiny handful have made people and corporate culture issues their personal priority. Amazing as it sounds, there are many companies where HR is still not represented at senior Exco level. These companies are likely to find that they are the first to become prisoners of their past, as sweeping changes and increasing competition hit their industries.
The Innovatorâ€™s Trap
The trap that many innovative companies fall into is simple: they protect the outcomes of their innovative processes, rather than the processes themselves. Imagine an industry with two companies: A and B. Company A surges ahead with an innovation, snatching up market share with a great new product or process. For a few months or even years, Company A has a clear advantage. With such an advantage they donâ€™t need to continue innovating. Instead, they focus their time and resources guarding and perfecting the new product they developed.
Meanwhile, Company B has worked out how to copy Companyâ€™s Aâ€™s product, and incorporate it into their own offering. Within a few months, Company B has reclaimed its lost market share and is on a par with Company A â€“ and, probably, has not spent the R&D budget Company A required. Because they are a challenger at this point, Company B may even have the momentum to innovate beyond Company Aâ€™s current position and take the industry lead. Until they make the same mistake.
The mistake is the innovatorâ€™s trap: to guard the outcomes of innovation, rather than to understand and guard the process that produced those outcomes in the first place. These companies are prisoners of their past.
A Leadership Crisis
All this is frighteningly easy to say, and as I write this I am aware that many will agree with me â€“ so much so, that I guess many will be tempted to stop reading at this point, thinking that what has been said is â€œobviousï¿½? and â€œsimplisticï¿½?. Why then do so many companies fail to go from good to great? Why do so many good companies fail? And why is there so little return on innovation in the world?
The answers to these questions are simple: a failure of leadership to be forward thinking! The symptoms of this failure include a lack of emphasis on people and corporate culture, as well as a lack of real innovation, but the root cause is a leadership issue. At its heart, this leadership failure is created by leaders who are incentivised to only think short term.
Especially in listed companies, there is a fixation on quarterly results. I have even been to companies where the current share price ticks over in the reception area â€“ a constant reminder that todayâ€™s shareholder return is the most important measure of success. Whilst return on shareholder investment is important, it one of the most dangerous measurements of a companyâ€™s health. In fact, it can be extremely unhealthy, as the temptation is to strip out capacity, cutting into muscle as we â€œcut out the fatï¿½?, and actually destroy the companyâ€™s ability to function effectively in the future. And letâ€™s not even mention some of the very common accounting fudges used to maximize this periodâ€™s results â€“ with often devastating effects on the future.
Why is this behaviour allowed? Simply because the leaders (and even shareholders) are able to ensure that they are not around in the future, when it all hits the fan. When it becomes obvious that their companies are now prisoners of their past, they are not around anymore.
True leaders seek to be judged by what happens after they have left, not what happens while they are there. In Jim Collins’ book, this is one of the key distinguishing factors of what he calls “Level 5” leaders: that they focus on building an enduring organisation that lasts beyond their tenure, rather than focusing on their own career and the company’s success only while they are there.
Executive remuneration is one of the key factors mitigating against the emergence of this type of leadership. How leaders are paid and earn bonuses is often a mystery as companies that have posted serious losses regularly reward their CEOs and senior Execs with bonuses in the same year the company loses millions. And companies with great reputations as cost cutters nevertheless give their CEOs outrageous bonuses in the year that staff and line functions have had their budgets stripped bare.
The Guts to Look Forward not Back
Until companies and their leaders realise that holding onto past successes, getting trapped into short-term thinking â€“ especially about people capacity – and incentivising incorrect behaviour are all symptoms of looming failure, they are destined to be prisoners of their past. The future awaits those who are bold enough to break free, and brave enough to do today what needs to be done to ensure success, not only for today, but for the future as well.
Dr Graeme Codrington is an international expert on Talent and the Future of Work. He is a futurist and professional speaker with TomorrowToday.biz, and can contacted at [email protected].