Wednesday, June 27, 2007

CORPORATE BLUES


This post is inspired by an article in TOI, Times Business section.

People speak volumes about the success stories of great corporates like Google, Infy, but the experiences of its successors is not all that great. With the corporate life cycle span coming down at an alarming pace, the perception of invincibility towards these giants doesn't seem to be true any more.

No doubt it takes great efforts and distinguished qualities for a team to establish themselves as a successful corporate. And to become a company like Google, Cisco, Microsoft, IBM..etc it requires to take more prudent but bold moves at the right time. Its always exciting to talk about and cherish the success stories of these good companies, to know what it takes to reach there, in the achieving what IBM did, what Microsoft is doing and what Google will do.

Here comes the twist in the tale, the game is not all about how you get there but how you sustain your position. The article by Neelima Mahajan called "When success breeds failure", discloses some of the bitter and hard facts to digest about corporate life expectancy. The article is the perception of Jagdish Sheth, a well known academic who has been closely watching a clutch of hugely successful companies. According to him these successful companies have unintentionally acquired certain wrong habits which could be actually drawing dead-ends for themselves.

"Jagdish 'Jag' Sheth is a Professor of Marketing at Emory University's Goizueta School of business. An acclaimed expert in Marketing, Sheth has also penned books like 'The Rule of Three' and 'Tectonic Shift'."

His explanation stands contradicting to the ideas put forth by some of the profound business gurus like Jim Collins and Tom Peters through bestsellers like 'In search of Excellence' and 'Built to Last'. We have this notion that good companies are invincible. This idea, perpetuated by popular business literatures is good only till a company lasts. Sheth has been toiling a bit in doing his bit of research, scouting answers to the questions which even creme de la creme of the corporate world (companies which are/were part of the Fortune500, S&S 500 and the FTSE) is not aware of. The result is a book titled 'The Self-Destructive Habits of Good Companies'. Today, companies, which are financially better off, transparent and doing well in the market from an investment point of view, are the very same companies that have shorter life cycles. What is happening? The findings from Sheth's research has helped answering such questions reasonably and can be considered as an ultimatum for today's corporates.

All these days, like most of you reading this, i was under the impression that competition destroys good companies. Strangely, (if Sheth is right? ;-) ) its not competition but its the companies who destroy themselves. Sheth has Six strong points that helps him prove his speculations by facts.

ARROGANCE FROM ACCIDENTAL SUCCESS

"The vast majority of companies succeed by accident –being at the right time at the right place. And then they begin to take more credit for themselves and that leads to arrogance." says Sheth. At General Motors, Alfred Sloan (hearing this name for the first time!!) created a culture of arrogance (really??). These lines are excerpts from the article, if i am hurting anyone's sentiments, then am really sorry because i cannot stop going further. Same in the case of Wal-mart and Microsoft. "Wal-mart grew up from a small company to a large and successful company, beating its competitors like Sears and K-Mart, by nurturing everyone properly - for instance, they offered consumers better brands at lower price. Later they became abusive with success," says Sheth. About Microsoft, most of you know how it grew up to this stature. "Now it has begun to dictate terms to trade partners and end customers. Then it became abusive of suppliers - the application software guys." Its universal truth that once arrogance sets in, you tend to abuse people around you. What happens if a company does that with its customers, suppliers, employees and community at large? Thats intuitively detrimental. There starts the downfall of the company, it has chosen to destroy itself.

THE NO-ONE-CAN-BEAT ME SYNDROME

Not just in case of individuals but its true in case of companies also that success breeds complacency. Sheth points out a classic example of Air India of the 1970s. On any measure you can imagine (be it financial performance, capacity or customer service), it was easily one of the best in the world. Once it was nationalized, it became complacent and started to collapse. According to Sheth, complacency usually comes when you are a monopoly- because you have no competition. It comes in public enterprises too.

SIDE EFFECTS OF GROWTH

When you grow into a large company by size and responsibilities, need for organizing things also grows. "Its essentially how you create a culture of failure over long term by being a culture of success. These are habits you acquire as a side effect of being successful," says Sheth. Turf wars, as Sheth calls it, engineering doesn't work well with sales and marketing, which in turn doesn't work well with functional support people. Then there are turf wars between geography heads or country managers versus functional heads or country managers against product managers. Consider some of the companies which have grown through acquisitions. Most of the companies acquired would be founder driven and the acquiring company would have had tough time managing all the accusations and integration activities.

WHEN COMPETENCY BECOMES LIABILITY

Competencies are proven ingredients for the success of a company but it is essential to make sure you change them as you grow, as the market grows and the time changes. Remember, if you have a competency that no one can duplicate, more likely that competency becomes a trap for you. One example that strikes my mind is Kodak, it made a blunder by not moving into digital technology in time.

HOW BIG IS YOUR VIEWFINDER ?

0Consider your self in a marathon race, initially your focus will be on all the people participating in the race. As you progress, the focus shifts to those few in front of you. Analogous to this, the notion is that as more and more companies succeed, they begin to narrow down their peripheral vision of who their competition is. Automobile industries are the best examples for this, car makers only watch each other. "They have the same engineers go from one company to another. So they don't recognize that there could be a fundamental shift in automobile technology from outside," says Sheth. The same holds for memory chips, the then leaders never thought that Koreans would take over, Samsung is the leader. This forces me to think the same about Bangalore as the IT capital.

"NO, THAT CANNOT HURT ME" ATTITUTE!!

Denial is the most dangerous habit. Today Japanese companies are giving US automakers a run for their money. Interestingly, it was the American auto guys themselves who opened the doors for the Japanese "General Motors never believed that small cars would sell well. Their numbers showed that there just wasn't a big enough market," says Sheth. So what they did next was outright silly. They began to allow three automobile dealerships they controlled to carry Honda, Nissan and Toyota. That allowed the Japanese to come into the mainstream market. The irony was that a Pontiac dealer would sell Honda like hot cakes whereas a heavily discounted Pontiac would not sell at all. So the dealer's loyalty would automatically shift to Honda.

3 comments:

Sandesh said...

Siva!

Not to dissapoint you, this has been a lengthy, borin post! You know that i hate the corporate n i have my own reasons to it!

The reasons given by the author ( who shares his first name with you ) is secondary for me. Gone through the whole post n i just found some jargon about the reasons for the downfall of some companies which i am totally disinterested!

Waitin fo yo next post! Hope it doesnt take long!

ankurg said...

It was a lengthy one. The start was better than the end because in the end you started using too many direct quotes from the book.

But well thought and very elegantly written.

Stay regular.

Publius Americanus said...

You prompt some original responses.

Stay regular indeed.