The root cause of going from business success to business extinction is a failure to occasionally regroup, reassess, refocus and realign the underlying assumptions, risks and priorities that drive the organization. These enterprise-altering forces occur at a faster rate than ever before and must be identified and adjusted to reflect the dramatic changes in the marketplace as well as internally. Some, like Covid 19, are severe black swans that cause seismic shifts in worker expectations and behaviors. Others are less obvious but, left to metastasize, can be just as devastating. The reason why this rethink happens less often than it should is a consequence of several factors. More notably, one is called Albrecht’s Law: Intelligent people when gathered together in a successful organization over time will tend towards collective stupidity.
Being caught unaware or blissfully choosing to ignore these critical signals and attendant opportunity costs that can fuel the need to change course is negligence. It’s also insidious. Assumptions about what drives business success enter corporate life as simple observations that invariably arise from ingrained biases or beliefs about the constancy of one’s employees, customers and competitors as well as an ignorance of the probable impact of emerging technologies. These are then either competently or incompetently enshrined in a strategy or business plan aimed at altering workplace practices and procedures. Eventually, however, they harden into orthodoxy – meaning “it’s just the way we do things around here.”
The voluminous but credible research on why successful companies fail indicates clearly that the assumptions held the longest (without being questioned or tested by leadership) or the most deeply (without being robustly challenged) are the likeliest causes of a downward spiral into oblivion. Some beliefs become so entrenched, it’s deemed no longer polite or politic to debate them. This ostrich mentality is to “stick with the playbook that got us here” and ignore the reality of incessant, unpredictable changes in the business landscape.
In short, this is delusional thinking. Nonetheless, it’s rampant. The Harvard Business Review proclaims “Businesses are disappearing faster than ever.” While study after study tells us that 90% of workers today are convinced AI will affect or eliminate jobs, curiously, more than 90% believe theirs will not be the ones effected. This collective rationalization, self-censorship and suppression of dissent among intelligent people is known as groupthink. Hence, what comes down from on high is invariably rubber stamped on the presumption that “leadership is looking out for us” and making the right choices on our behalf.
One reason why this behavior goes unchallenged is that doing so goes against the very nature of the executive mindset: the CEO and his or her executive team are paid to develop a vision and to execute it with alacrity and resolve. Another reason, endemic to all entities, is the human condition: introspection and self-doubt don’t appear on the list of required or desired leadership attributes of top executives. A third reason is governance – leaders (and managers) don’t feel safe expressing their anxieties to key stakeholders, particularly owners. Hence a review of the strategic plan for the coming year all too often fails to stimulate deep, probing and difficult conversations – yet another reason why asking those sometimes embarrassing (if not uncomfortable) questions is generally treated as simply a pro forma exercise.
Delay only worsens the prospects for recovery. A landmark study that included over 500 international business juggernauts that had suffered one or more regression points in revenue and profitability enhancement revealed significant patterns in the above root causes stifling historical growth. Unless senior management was able to diagnose the specific causes and get the company back on track quickly, the odds of ever returning to healthy top-line performance results were rare to non-existent. The convenient assumption or belief that the downturn was due to large, unpredictable external forces was proven false – most had occurred for reasons that were both knowable and addressable at the time. And the vast majority resulted from poor choices around needed changes in strategy, people and culture.
By far the largest cause of organizational decline is being hemmed in by a long history of success which gives leaders less reason to doubt their business or management models. Once a shift in marketplace demand or outdated internal processes became evident, the changes required were simply too little too late. A cycle of denial, inertia and rationalization kept the decision makers from separating the signals from the noise, so they continued to place their bets on proprietary attributes that were in decline. Other ripple effects of inaction in descending order of magnitude included breakdowns in innovation management, a failure to recognize new growth opportunities in the existing core business, and a lack of managers with the skills required to nurture high performance.
Shortages in these critical skill sets are expected to get worse. What stops revenue growth dead in its tracks is not merely a shortage of talent but its absence at the executive level. Internal capability gaps are often self-inflicted – the unintended consequence of promote-from-within policies that have been too strictly applied. Keeping employees who are not good enough to promote and not bad enough to fire is a cardinal sin of leadership. Few companies formally monitor and act on the essential balance in the executive team between company lifers and new hires who can offer fresh ideas and novel approaches to innovation. Successful companies especially have a poor track record of incorporating new voices into senior positions.
All too often, management development programs focus on replicating the skill sets of the existing leadership – preferring to hire “people like us” – rather than on developing the capabilities tomorrow’s leaders will need to overcome both known and unknown challenges. Leaders and managers in unsuccessful companies think you get better by osmosis. You don’t – you get better by training. In today’s volatile, uncertain and complicated world, you need to accelerate the pace of organizational learning by going back to school. Another way to challenge conventional thinking is to bring an external, contrarian perspective to the table … one with the experience, expertise and ability to speak truth to power.
What is needed is a willingness, the tools and a process to test the basic assumptions and to quantify the new risks – what might serve to alert and inform the executive team about necessary changes in the relevance of existing practices and the sustainability of their current competitive advantage. Any decision-making process begins by making the key assumptions, risks and priorities explicit, then measuring them for pertinence, accuracy and feasibility. Best practices for doing so suggests the involvement of younger and newer employees who are less likely to be invested in existing orthodoxies. Their questions are more prone to identify the thorny issues and vexing truths, to challenge entrenched beliefs, ask provocative questions, envision alternate future scenarios, and encourage reality checks through post and pre-mortem analyses.
❏ Address team alignment issues, defining both the short and long-term goals, getting the right people in place who are sufficiently capable of addressing the emergent challenges, and designing actionable processes that strengthen collaboration and risk taking.
If you’re unwilling to do these four things, you’re going to die.