Why do once great companies continue to fail to keep up with the times? One explanation is that they attempt to solve the problems of tomorrow with the tools of yesterday.
No man ever steps in the same river twice, for it is not the same river and he is not the same man. Such are the words of Heraclitus of Ephesus, a Greek philosopher, whose philosophy was centered around the concept of everything being in constant motion. Even though this statement is 2500 years old, it precisely describes the reality of the ever-changing landscape most companies are facing today.
A study by McKinsey found that the average life-span of companies listed in Standard & Poor’s 500 was 61 years in 1958. Today, it is less than 18 years. McKinsey believes that, in 2027, 75% of the companies currently quoted on the S&P 500 will have disappeared.
Even though all of us are aware of the risk of becoming obsolete and none of us wishes to join the ranks of Kodak or Blockbuster, the list of once-great companies that failed to renew themselves is growing at an accelerating rate.
With the never-ending wisdom of hindsight, it is easy to point fingers and say, “how did they not see that coming?” Perhaps they saw it coming, but merely lacked the necessary tools to face a changing market.
Or even worse, they were so deeply tied to the methods that provided success in the past, that they were not only confident that whatever comes our way, we know how to fend of every challenger out there, but also failed to realized that the challenge ahead had completely different characteristics than those of the past. In my opinion, this deadly combination of hubris and confirmation bias has led to the demise of many great companies.
It the only tool you know I hammer, every problem looks like a nail. If you at the same time is convinced that your particular hammer is the best hammer ever made, you will probably attempt to hammer away on a screw even though you know it’s not a nail. There are many examples of this, but perhaps the most notable is Nokia. Their height, they more than fifty percent of the profits in the mobile phone market belonged to Nokia, and as a company, they had made the transition from manufacturing rubber to becoming the leading mobile phone manufacturer in the world. At the same time, they (believed) that they had the best brand in the world. The Nokia sound was the soundtrack of the early 2000s.
What Nokia failed to acknowledge was the importance of software in the next generation of handsets. Nokia at its core was a hardware company, where both their engineers and marketers were experts at designing and selling hardware. As a result, Nokia grossly underestimated the importance of the smartphone entering the market.
Enthralled by its past success Nokia also overestimated the strength of its brand and believed that even if it was late to the smartphone game it would be able to catch up quickly, and continued to insist that its superior hardware designs would win over users, even long after the launch of the iPhone.
Yahoo is another company that has been struggling to keep up with the times and has been left to slowly deteriorate as the world is changing. It is easy to point out the opportunities that could have, would have or should have change the course of tech history as Yahoo not only almost acquired Google in 2002, but also almost acquired Facebook in 2006, but the key lesson here is the systematic inability to acknowledge fundamental paradigm shifts in the usage of digital services. And nowhere is this more apparent than in the mobile space. Just as Nokia failed to adapt to the smartphone era, the same can be said for Yahoo. When Marissa Mayer took over as CEO in 2012, Yahoo’s mobile business barely existed. Mayer was tasked with bringing Yahoo into the “smartphone era” a full five years after it had started.
According to Andreessen Horowitz Yahoo’s homepage-driven content portal did not work on mobile, paving the way for Facebook and Google to capture user where they were at the time. Even though Yahoo set out to be a predominantly mobile company, they arrived at the party too late, as well as having an organization that was used to creating content for a desktop-based browser, and relied on this to give them success on the mobile app. Even though Yahoo managed to generate some revenues from its mobile venture, repeating what made them succeed on the traditional web was not sufficient compared to the competition.
When facing digital disruption, our reliance on gut feel and past experiences may prove to be our worst enemy. In a static world, this approach may succeed, but as soon as you throw technology into the mix, the only constant factor is perpetual change.
One of the deadliest lessons from history of failing to acknowledge the role of technology can be found back in 1914, at the first major battle of world war 1, the battle of Liége, where the massive army of the German empire attacked Belgium. At the dawn of the first world war, the military commanders at the time were trained in traditional warfare where two great armies meet at the battlefield.
As a result, the German army charged the vastly outnumbered Belgian defense line with a never-ending tidal wave of infantry. What they failed to account for was that the Belgian army was dug in behind heavily defended and at the time technologically advanced fortifications. Only, after suffering heavy casualties, the German army realized that the success formula of past military campaigns was obsolete and turned to one of their own technological marvels at the time and literally brought in the big guns to turn the tide of battle.
While this example is more than 100 years old, this time period also plays an important role in how we are taught to structure and organize our organizations.
Even though we are leaving the information era for an era of machine intelligence, our institutions and organizations are still built on an industrial logic. Figure out what works, refine and repeat. The whole purpose of the core process is to replicate the successes of the past. But what happens when you rely too much on your processes and fail to renew your core business? I recently watched Steve Jobs – the Lost interview on Netflix, and he phrased the problem with this situation perfectly:
‘You know what it is? People get confused. Companies get confused. When they start getting bigger they want to replicate their original success. And they start to think that somehow there is some magic in the process of how that success was created. So they start to institutionalize the process across the company. But before very long people get confused and think that the process is the content. And that was ultimately the downfall of IBM. IBM had the best process people in the world but they forgot about the content.
And that’s what happened a little bit at Apple too. We had a lot of people who were great at management process and they didn’t have a clue as to the content. And in my career I found that the best people are the ones who understand the content. They are a pain the butt to manage. You put up with it because they are so great in the content. And that’s what makes a great product. It is not process. It is content.’
However, not everyone can be Apple, and not even Apple has Steve Jobs at the helm anymore. In order to build endurance through adaptability as part of the organizational culture, one must be willing to explore and experiment while at the same time be able to deliver on existing financial targets. Constantly be aware of your surroundings, when top management spends more time on internal affairs than looking outwards and forwards, you are getting dangerously close to the beginning of the end. Continuously combat legacy, and acknowledge that legacy technology is merely the symptom, the root cause is legacy culture. Finally, when navigating in an environment of constant change, avoid hubris. Be aware of the fact that the success formula of the past might be the recipe for future demise.