In his 2007 book, The Self-Destructive Habits of Good Companies ... And How to Break Them, Dr. Jagdish N. Sheth, a Marketing Professor at the Goizueta Business School at Emory University, explores the reasons successful companies most often fail. He characterizes those traits as "habits," and with some foresight, that negative behavior can be modified to keep an organization off the path of self-destruction.
"In my view, the negative is more hidden and deeply embedded. Unless you consciously look for those issues, you won't find them," Sheth explains. "It's about searching from within and it's why I wrote the book. We all tend to look at the positive, but Eastern philosophy motivates people to look within to find the reasons for inertia or failure. Actively seeking out those problem areas—examining those negatives—is the best way to diagnose and then solve problems. It's a more proactive than reactive way to maintain and grow your company."
The Seven Self-Destructive Habits
Sheth has clearly defined a set of self-destructive traits, and offers some definition around why they can be so problematic:
- Volume obsession ("rising costs, falling margins")—Sheth refers to this as "cross-subsidizing" parts of your business, i.e., cross-subsidizing one market with another or one product with another. "When you have a volume obsession and execute on it, you attract competition in your higher-margin markets or products," he says. "For example, being a low-cost provider means you're sacrificing margins for volume. It didn't work for the airlines and it typically doesn't work in most businesses. You can't make money by boosting sales alone—a top line focus—you need to also deliver margins and profits."
- Denial ("accepting orthodoxy")—To avoid this, you need to look for and eradicate the "orthodoxy" in your company. Often, especially in founder-driven and family companies, we see aspects of "this is the way we've always done it." But the world is changing around you and your need to change with it. You need to listen to external and internal voices. Once you believe you're truly unique, you stop listening and learning.
- Arrogance ("pride before the fall")—"Often, you succeed by accident or even despite leadership," observes Sheth. "Even with great business plans, all businesses succeed in part due to luck. If you make the mistake of attributing your achievements to yourself, you won't be open to restructuring strategy and vision as the markets around you change."
- Complacency ("success breeds failure")—If you're not looking forward, you stand to get ambushed by external factors—the drivers over which you have no control that can affect your business. Those drivers include regulation, capital markets, competition, globalization, technology and customers. They can work both for and against you. In terms of regulation, the stroke of a pen—the signing a new law or a court decision (e.g., look at what deregulation did to the telecommunication and energy industries)—can forever change your business. Capital markets can work to send your industry and your company out of favor with investors. Customers, on the other hand, tend to be comfortable with providers and resistant to change, which is a positive, until a competitor does something better than you. Constantly monitoring the external factors that impact your business can help you cope with them, as opposed to the reverse.
- Competency dependence ("the curse of incumbency")—"What you are best at—what gave you a foothold in the marketplace—can become irrelevant," notes Sheth. "Look at how film was replaced by digital cameras. You need to constantly change your competencies and make them transformative to keep up with your market and industry. Don't be too loyal to an existing technology or capability."
- Competitive Myopia ("a near-sighted view of the competition")—When you first opened your doors, everyone was your competition. As you move forward and carve out a niche, you begin to focus on fewer competitors, which can lead to your being surprised by a competitor you may not be thinking of down the road. In the 1970s, for example, we laughed at Japanese cars, but now they're the norm and they outsell many American models. While we focused on Japanese technology innovations, new competitors came from Korea and eventually they will come from China, India and Russia. You need to keep your competitive assessment as broad as possible so that you know where potential threats are coming from.
- Territorial impulse ("culture conflicts, turf wars")—As a company grows, it tends to split off into "silos," based on different functions and disciplines. You see the development of different mindsets—a HR mindset, a finance mindset, an engineering mindset, etc. As a result, cultural differences arise within the company, which makes it difficult to develop trust, not to mention cross-functional teams. Without consistent communication, an allegiance to turf—and not the company's overall goals—can become an issue.
Bottom line, says Sheth, is that paying attention to and eradicating these traits in your own company will keep you on the right path. "As a leader, you should also be a leader of questioning prevailing wisdom, culture and practices, even if you created them," he opines. "You need to avoid complacency to execute on long-term vision. Constantly question and allow others to do the same. The half-life of knowledge is getting shorter—whatever you learn today will be of less value sooner rather than later. You need to always be willing to learn and watch the external environment to determine how it will affect your company."
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