Perfect storm and how companies fall

Perfect storm (noun)-an especially bad situation caused by a combination of unfavourable circumstances

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Sydney Finkelstein, a management thinker, has written an interesting book on why some smart leaders fail. After lot of research he came up with four common themes that lead to fall of smart CEOs and their companies.

Like perfect storm, these four themes work together, leading to collapse of company. One such interesting example is that of Motorola in area of cell phones.

Theme 1 – Executive mind-set failure- Motorola was world leader in analog cellphones, but world was shifting to digital cellphones. Motorola refused to shift from analog to digital. In fact they had patents in area of digital phones, but they sold it to European companies like Nokia and Eriksson. Leaders were comfortable with what they were familiar with, rather than shifting to something new.

“We’re telling them we need digital, we need digital, we need digital. They come out with analog Star-TAC. They were thumbing their nose at us. The sales folks – they knew. .. everyone knew. ..”

-Telecom carrier company on Motorola.

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Theme 2-Refusal to face reality -There was lot of infighting among different departments within Motorola, all this made shift to new technology difficult.

Theme 3 -Organisational breakdown -The compensation system of Motorola incentivised analog technology; there was no incentive to shift to digital technology. Short terms gains of incentive system prevented much needed long term changes.

Theme 4- Leadership pathologies- History of past success, innovations and culture of technology driven products (as opposed to customer driven products) made leaders reluctant to change. They felt that what worked in past will work in future too.

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“The company fell by the wayside when the digital age came along, and it failed to respond quickly or effectively to the changing attitudes of its customers…Motorola’s market share of total U.S. cell phone business fell from 60% in 1994 to 31% in 1998, and then dropped to 16% in 2002.”

–    Sydney Finkelstein

 

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