Dear all,
Came across this article..quite thought provoking one..
Cheers,
Rajat
Last month, SBC Communications announced its plan to acquire AT&T, the venerable 100+-year-old telecommunications company. The idea that an industry stalwart could fall prey to a former “Baby Bell” leaves many to question just how well the nation’s largest and oldest companies are
managing in today’s marketplace.
Jagdish Sheth, the Charles H. Kellstadt professor of marketing at the
Emory University’s Goizueta Business School, says that the life
expectancy of American companies is declining, and that even some of America’s most respected firms are susceptible to failure. What is it that can bring America’s most revered and oldest companies to their knees? In an interview with Knowledge@Emory, Sheth discussed why success too often breeds failure. As a well-known business strategist and the founder of the Center for Relationship Marketing (CRM) at Emory University, Sheth is the winner of the 2004 American Marketing Association’s Charles Coolidge Parlin Award, in addition to the 2004 American Marketing Association/Irwin/McGraw-Hill Distinguished Marketing Educator Award. His most recent book—The Rule of Three: Surviving and Thriving in Competitive Markets, co-authored by Rajendra Sisodia, altered the current notions on competition in business.
K@E: What was the genesis of your research on why good companies fail?
Sheth: The journey began in 1991 when I was asked the most insightful
question. I had been advising this company for some time, and a senior
officer of a large company had become the group CEO. When he was the
CEO of the core business, he had read Tom Peters’ book In Search of
Excellence and loved it. When he became the group CEO, he reread the book and suddenly he got very uneasy. In less than five or six years, many of the companies praised in Peters’ book were in serious trouble—companies like IBM, Xerox, and Sears. He believed the tenets in the book—the ways for companies to be the best. He asked me, “Do you know why good companies fail?” I had never thought about this before, and I became curious.
K@E: What were some of your initial findings into the failure of once
highly successful companies?
Sheth: I did archival research and began to understand why some
companies didn’t survive. I interviewed the people from the companies
directly, and that is how I developed a framework. I found out that the life expectancy of companies was declining. That was very surprising. I was taught that institutions were immortal and humans were mortal. Today, however, we are living longer and the company’s life expectancy is dropping. For example, a corporation’s life expectancy is only about 14 ½ yrs and declining, because of mergers and acquisitions or Chapter 11 protection.
K@E: Can you break down the situations or factors that lead to failure
for a successful company? I understand that you categorize these into
six separate areas.
Sheth: Yes. In my research, I identify the six externalities that
bring about a change. They are regulation, capital markets, competition, technology, globalization and customers. When any of these external contexts changes radically and the company is either unable or unwilling to change, it often results in failure.
K@E: Are there one or two of the six externalities that stand out as
more likely to factor into the failure of a company?
Sheth: The fastest moving externalities are regulation, competition,
and capital markets, while the slowest moving ones are technology,
customers, and, globalization. Regulation, in particular, is the most
influential. With the stroke of a pen, you can change a whole industry’s nature. Many companies are simply unable to adapt, as is evident in the airline and telecommunications industries and other deregulated industries. In fact, it was the inability of AT&T to manage regulation at the state level against the Baby Bells, as well as the emergence of non-regulated Internet, which led to its decline in market share.
K@E: You note that, strangely enough, success breeds failure. What do
you think was the most surprising finding in your research related to
this?
Sheth: I began to learn that most companies come into existence by
being opportunistic—call it entrepreneurial opportunity. They take all the credit, but it’s partly the environment and partly the individual.
Company success is very much like human behavior—a result of nature and
nurture. But managers refuse to say that they were blessed from above, and so they take all the credit for themselves. They succeed as long as the environment doesn’t change. The underlying theory is that many people in business succeed by accident and not by plan.
K@E: Going with that thought, what then keeps company managers and
executives from moving ahead and learning from the mistakes of others?
What makes them unwilling to adapt?
Sheth: When you succeed by accident, you often latch on to your belief
system much more than before. You become superstitious in a way. Next
to baseball players, the most superstitious people in the world are
entrepreneurs. They pull out the rabbit’s foot and the special pen. Some of that is good in a way. Superstition gives you an inner strength. You are able to psych yourself up much easier, just like an athlete does before a major event. But, unfortunately, people end up believing what they do will succeed forever, and then they become resistant to change. They get locked into one paradigm or one way of life, like Digital, for example. The founder destroyed the company himself since he was bent on his belief in the continued success of the mini computer. He held on to that belief even when the personal computer became the standard, and he destroyed the company in the process. Similarly, many airlines failed after rapid deregulation in the late seventies because they could not change fast enough to meet or resist competition. Examples include Pan Am, TWA and Eastern Airlines.
K@E: It sounds as if complacency and ego both factor into the failure
process. Can you explain your approach to resolving this?
Sheth: Unfortunately, change management is most effective when the
company is in crisis. It shouldn’t be that way, but it is, just like in our daily life. The best wake up call is often after a mild heart attack or discovery of a chronic disease, such as diabetes.
There are three dimensions to change management. The first is mindset
change. This is usually accomplished by leadership programs, such as the famous “workout” program at General Electric. The second is some form of reorganization. This includes eliminating or restructuring
leadership’s responsibilities and restructuring the organization. HP went from a country-by-country profit & loss organization to, for example, global product management reorganization. Finally, the most critical change is the reward system. I am on the compensation committees of several public company boards, and I am amazed at how much the CEO and his direct reports are obsessed with compensation issues: we all are! For successful change management, it is important that these three dimensions of change are coordinated and executed in parallel.
From India, Pune
101Came across this article..quite thought provoking one..
Cheers,
Rajat
Last month, SBC Communications announced its plan to acquire AT&T, the venerable 100+-year-old telecommunications company. The idea that an industry stalwart could fall prey to a former “Baby Bell” leaves many to question just how well the nation’s largest and oldest companies are
managing in today’s marketplace.
Jagdish Sheth, the Charles H. Kellstadt professor of marketing at the
Emory University’s Goizueta Business School, says that the life
expectancy of American companies is declining, and that even some of America’s most respected firms are susceptible to failure. What is it that can bring America’s most revered and oldest companies to their knees? In an interview with Knowledge@Emory, Sheth discussed why success too often breeds failure. As a well-known business strategist and the founder of the Center for Relationship Marketing (CRM) at Emory University, Sheth is the winner of the 2004 American Marketing Association’s Charles Coolidge Parlin Award, in addition to the 2004 American Marketing Association/Irwin/McGraw-Hill Distinguished Marketing Educator Award. His most recent book—The Rule of Three: Surviving and Thriving in Competitive Markets, co-authored by Rajendra Sisodia, altered the current notions on competition in business.
K@E: What was the genesis of your research on why good companies fail?
Sheth: The journey began in 1991 when I was asked the most insightful
question. I had been advising this company for some time, and a senior
officer of a large company had become the group CEO. When he was the
CEO of the core business, he had read Tom Peters’ book In Search of
Excellence and loved it. When he became the group CEO, he reread the book and suddenly he got very uneasy. In less than five or six years, many of the companies praised in Peters’ book were in serious trouble—companies like IBM, Xerox, and Sears. He believed the tenets in the book—the ways for companies to be the best. He asked me, “Do you know why good companies fail?” I had never thought about this before, and I became curious.
K@E: What were some of your initial findings into the failure of once
highly successful companies?
Sheth: I did archival research and began to understand why some
companies didn’t survive. I interviewed the people from the companies
directly, and that is how I developed a framework. I found out that the life expectancy of companies was declining. That was very surprising. I was taught that institutions were immortal and humans were mortal. Today, however, we are living longer and the company’s life expectancy is dropping. For example, a corporation’s life expectancy is only about 14 ½ yrs and declining, because of mergers and acquisitions or Chapter 11 protection.
K@E: Can you break down the situations or factors that lead to failure
for a successful company? I understand that you categorize these into
six separate areas.
Sheth: Yes. In my research, I identify the six externalities that
bring about a change. They are regulation, capital markets, competition, technology, globalization and customers. When any of these external contexts changes radically and the company is either unable or unwilling to change, it often results in failure.
K@E: Are there one or two of the six externalities that stand out as
more likely to factor into the failure of a company?
Sheth: The fastest moving externalities are regulation, competition,
and capital markets, while the slowest moving ones are technology,
customers, and, globalization. Regulation, in particular, is the most
influential. With the stroke of a pen, you can change a whole industry’s nature. Many companies are simply unable to adapt, as is evident in the airline and telecommunications industries and other deregulated industries. In fact, it was the inability of AT&T to manage regulation at the state level against the Baby Bells, as well as the emergence of non-regulated Internet, which led to its decline in market share.
K@E: You note that, strangely enough, success breeds failure. What do
you think was the most surprising finding in your research related to
this?
Sheth: I began to learn that most companies come into existence by
being opportunistic—call it entrepreneurial opportunity. They take all the credit, but it’s partly the environment and partly the individual.
Company success is very much like human behavior—a result of nature and
nurture. But managers refuse to say that they were blessed from above, and so they take all the credit for themselves. They succeed as long as the environment doesn’t change. The underlying theory is that many people in business succeed by accident and not by plan.
K@E: Going with that thought, what then keeps company managers and
executives from moving ahead and learning from the mistakes of others?
What makes them unwilling to adapt?
Sheth: When you succeed by accident, you often latch on to your belief
system much more than before. You become superstitious in a way. Next
to baseball players, the most superstitious people in the world are
entrepreneurs. They pull out the rabbit’s foot and the special pen. Some of that is good in a way. Superstition gives you an inner strength. You are able to psych yourself up much easier, just like an athlete does before a major event. But, unfortunately, people end up believing what they do will succeed forever, and then they become resistant to change. They get locked into one paradigm or one way of life, like Digital, for example. The founder destroyed the company himself since he was bent on his belief in the continued success of the mini computer. He held on to that belief even when the personal computer became the standard, and he destroyed the company in the process. Similarly, many airlines failed after rapid deregulation in the late seventies because they could not change fast enough to meet or resist competition. Examples include Pan Am, TWA and Eastern Airlines.
K@E: It sounds as if complacency and ego both factor into the failure
process. Can you explain your approach to resolving this?
Sheth: Unfortunately, change management is most effective when the
company is in crisis. It shouldn’t be that way, but it is, just like in our daily life. The best wake up call is often after a mild heart attack or discovery of a chronic disease, such as diabetes.
There are three dimensions to change management. The first is mindset
change. This is usually accomplished by leadership programs, such as the famous “workout” program at General Electric. The second is some form of reorganization. This includes eliminating or restructuring
leadership’s responsibilities and restructuring the organization. HP went from a country-by-country profit & loss organization to, for example, global product management reorganization. Finally, the most critical change is the reward system. I am on the compensation committees of several public company boards, and I am amazed at how much the CEO and his direct reports are obsessed with compensation issues: we all are! For successful change management, it is important that these three dimensions of change are coordinated and executed in parallel.
From India, Pune
Ahhhhh rajat.....good article....... now only my company and the top management realise how important the reward system is....... :lol:
From Malaysia, Johor Bahru
From Malaysia, Johor Bahru
Hi Noel,
Am glad you liked the same...
Besides Reward what is more important is anticipating the changes in the market place & the role of HR is align the same to employees goals & ensure the mindset change!!..a tough assignment isn't it..especially when we HR professionals aren't exactly accorded the place of importance in the main line of Ops & company's decision making process when it comes to strategizing about the market changes et all..
Cheers,
Rajat
From India, Pune
Am glad you liked the same...
Besides Reward what is more important is anticipating the changes in the market place & the role of HR is align the same to employees goals & ensure the mindset change!!..a tough assignment isn't it..especially when we HR professionals aren't exactly accorded the place of importance in the main line of Ops & company's decision making process when it comes to strategizing about the market changes et all..
Cheers,
Rajat
From India, Pune
Hi Rajat,
I agree Top Management sometimes treats us with nothing but lip-syn service. Total involvement is not always the case. Of course that is to say that the HR individuals must also have a strategic business sense around him/her too. Although I have been educated and trained to be a HR person in a business suit, I have come across many that does not think like so. It too can be one of the "land mines" for HR practitioners.
I have always believed in the role of leadership. The phrase "There can be only be one captain on the ship" is only too true. The direction of the organisation, may it be in body, in spirit or in mind depends solely on the Captain of the Ship, of course, A strong First Mate is also important. But the truth of the matter is the directive that sets the direction of the organisation's culture and practices.
Eg. Can you imagine the consequences of lets say a HR Director that is lackadaisical in both is work and attitude. Can you imagine the chain effects from him/her throughout the company?
It is a tough position to be in as a HR prac. but a most challenging one and exciting position when you have a team that works in a same direction and purpose.
:D love and peace
From Malaysia, Johor Bahru
I agree Top Management sometimes treats us with nothing but lip-syn service. Total involvement is not always the case. Of course that is to say that the HR individuals must also have a strategic business sense around him/her too. Although I have been educated and trained to be a HR person in a business suit, I have come across many that does not think like so. It too can be one of the "land mines" for HR practitioners.
I have always believed in the role of leadership. The phrase "There can be only be one captain on the ship" is only too true. The direction of the organisation, may it be in body, in spirit or in mind depends solely on the Captain of the Ship, of course, A strong First Mate is also important. But the truth of the matter is the directive that sets the direction of the organisation's culture and practices.
Eg. Can you imagine the consequences of lets say a HR Director that is lackadaisical in both is work and attitude. Can you imagine the chain effects from him/her throughout the company?
It is a tough position to be in as a HR prac. but a most challenging one and exciting position when you have a team that works in a same direction and purpose.
:D love and peace
From Malaysia, Johor Bahru
Hi! Rajat Good article. The interview talks about the external environment, i hope you will agree that internal culture is very important to meet the extenal challenges. thanks Karthick
From India, Madras
From India, Madras
Hi Rajat Ji,
Excellent info.
I agree with Kathick that internal culture is also absolutely essential to meet the external challenges.
And internal culture is something which is built over a long period of time. Hence having a enterprising, open, transparent, resorceful, ethical internal culture is essential.
I have just started reading a book titled " Business Management - The Gita Way" by Swami Someswarananda. Found this book very inspiring. It says - Management is something to produce extraordinary results out of ordinary people. And Manager is not to produce results but to produce performers.
More about that later.
Thanks
Bala
From India, Madras
Excellent info.
I agree with Kathick that internal culture is also absolutely essential to meet the external challenges.
And internal culture is something which is built over a long period of time. Hence having a enterprising, open, transparent, resorceful, ethical internal culture is essential.
I have just started reading a book titled " Business Management - The Gita Way" by Swami Someswarananda. Found this book very inspiring. It says - Management is something to produce extraordinary results out of ordinary people. And Manager is not to produce results but to produce performers.
More about that later.
Thanks
Bala
From India, Madras
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