Successful companies, in order to remain successful need to constantly question their approach. By doing this they avoid the risk of becoming locked into strategies based on their past success, which are becoming irrelevant as the markets in which they operate are changing. Examples of this are IBM, when they failed to adapt to the changes away from mainframe computers in the 1980’s, Kodak failing to respond to the rise of the digital camera, and more recently Nokia who failed to pick up the trend to smart phones. In each case they subsequently had to make huge, radical, painful and expensive changes to get back on track.
The cases mentioned above are big public companies, and it is often difficult for them to change from a successful strategy because of the short term view that the markets take of their results. In privately owned businesses it is often a dominant owner, often the founder of the business, who sets the agenda. Whatever the size and business or industry they believe their own publicity at their peril. Never has that been more perilous than now, with the speed of change seeming to accelerate exponentially.
So what are the signs of this misplaced self belief? In essence they fall into the categories of totems, ideas so sacred that they cannot be questioned, and taboos which are the questions that cannot be asked. It will often be an environment where all the staff have only ever worked in that business, limiting knowledge of other ways of doing things, and employing “people like us” which reduces diversity and generates “a way that we do things here”. New staff joining the business will either fit in, or ship out pretty quickly when they realise that the organisation is closed off from listening to new ideas. What this generates is a business, no matter how successful, which becomes a one trick pony. If that trick stops working as things change, then the outcome is predictable.
Here an example from my own experience may demonstrate the point. In 1990 I was recruited to turn around a failing manufacturing business which was part of a listed service company run by a very powerful chief executive. As a non-core business the group did not have any real manufacturing expertise, hence my recruitment. Elsewhere in the service businesses recruitment was largely at the bottom with virtually all promotion made internally. The business was hugely successful, based on a strategy of acquisition of smaller businesses, which were then integrated into existing divisions, cutting out significant costs and generating large profits. As time went on the acquisitions got bigger and bigger until about 10 years ago when the company acquired a business twice its size believing that everything it touched would turn to gold. Things did not go as planned, but because the management had only known one way of doing things, when that didn’t work they just tried to do it harder. The fall from grace was rapid, a profit warning that profits would only rise 12% that year, a figure that most companies would be ecstatic with, saw the share price fall from £4.80 to £1.50 in six months. Things continued to deteriorate, resulting in board changes, disposals etc. to try and bring the situation under control. The company still survives, and as far as I know is profitable at a much reduced level, but it is no longer in the FTSE 100 and ten years later its shares languish at less than £1.
This was a business which showed all the classic signs, it was inward looking, lacked diversity in the management team, and it definitely had totems and taboos, and anyone questioning the direction set by the chief executive would rapidly find themselves clearing their desk. There were dissident voices, and people saying this can’t go on for ever, but they only spoke these blasphemies in quiet voices to like minded individuals. I was one of them, but I took the course of moving on, as did many others who perhaps in a different environment could have been part of the solution.
If your company is like this, what can you do? Perhaps learn a lesson from history? In the past kings would often have a “fool”, who because of the nature of his role was able to say the things that no-one else could, or would dare to. In business, to remain successful, we need the modern equivalent of a fool, to challenge the norms and ask the awkward questions. Ultimately it is the responsibility of the leadership of the business. At board level this should be part of the role of the non executive director, although too often they come from the same background as the rest of the board so reinforce rather than challenge the status quo.
But this is not just a board issue; it needs to cascade down the organisation. Recruitment policy should endeavour to ensure diversity, and management needs to support an environment where staff at all levels are encouraged to question the status quo in a productive way. The aim should be to become outward looking, watching what the market and competitors are doing, as well as scanning for those disruptive new products and technologies which could replace your own. I am not advocating change for changes sake, but while a successful business should capitalise on its success while it lasts, it should also be looking to the future by having a nursery of new products and services in development, to make sure that success continues.
So the question is do you have enough fools in your business?
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Tags: Business, Business Stagnation, Business Success, Company Directors, Directors, Human Resources, Management, non exec directors, Owner Managed, Small Business, Status quo, Successful Businesses
This entry was posted on 17/10/2011 at 12:01 pm and is filed under General Business Comments. You can follow any responses to this entry through the RSS 2.0 feed.
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The role of the “fool” in business
Successful companies, in order to remain successful need to constantly question their approach. By doing this they avoid the risk of becoming locked into strategies based on their past success, which are becoming irrelevant as the markets in which they operate are changing. Examples of this are IBM, when they failed to adapt to the changes away from mainframe computers in the 1980’s, Kodak failing to respond to the rise of the digital camera, and more recently Nokia who failed to pick up the trend to smart phones. In each case they subsequently had to make huge, radical, painful and expensive changes to get back on track.
The cases mentioned above are big public companies, and it is often difficult for them to change from a successful strategy because of the short term view that the markets take of their results. In privately owned businesses it is often a dominant owner, often the founder of the business, who sets the agenda. Whatever the size and business or industry they believe their own publicity at their peril. Never has that been more perilous than now, with the speed of change seeming to accelerate exponentially.
So what are the signs of this misplaced self belief? In essence they fall into the categories of totems, ideas so sacred that they cannot be questioned, and taboos which are the questions that cannot be asked. It will often be an environment where all the staff have only ever worked in that business, limiting knowledge of other ways of doing things, and employing “people like us” which reduces diversity and generates “a way that we do things here”. New staff joining the business will either fit in, or ship out pretty quickly when they realise that the organisation is closed off from listening to new ideas. What this generates is a business, no matter how successful, which becomes a one trick pony. If that trick stops working as things change, then the outcome is predictable.
Here an example from my own experience may demonstrate the point. In 1990 I was recruited to turn around a failing manufacturing business which was part of a listed service company run by a very powerful chief executive. As a non-core business the group did not have any real manufacturing expertise, hence my recruitment. Elsewhere in the service businesses recruitment was largely at the bottom with virtually all promotion made internally. The business was hugely successful, based on a strategy of acquisition of smaller businesses, which were then integrated into existing divisions, cutting out significant costs and generating large profits. As time went on the acquisitions got bigger and bigger until about 10 years ago when the company acquired a business twice its size believing that everything it touched would turn to gold. Things did not go as planned, but because the management had only known one way of doing things, when that didn’t work they just tried to do it harder. The fall from grace was rapid, a profit warning that profits would only rise 12% that year, a figure that most companies would be ecstatic with, saw the share price fall from £4.80 to £1.50 in six months. Things continued to deteriorate, resulting in board changes, disposals etc. to try and bring the situation under control. The company still survives, and as far as I know is profitable at a much reduced level, but it is no longer in the FTSE 100 and ten years later its shares languish at less than £1.
This was a business which showed all the classic signs, it was inward looking, lacked diversity in the management team, and it definitely had totems and taboos, and anyone questioning the direction set by the chief executive would rapidly find themselves clearing their desk. There were dissident voices, and people saying this can’t go on for ever, but they only spoke these blasphemies in quiet voices to like minded individuals. I was one of them, but I took the course of moving on, as did many others who perhaps in a different environment could have been part of the solution.
If your company is like this, what can you do? Perhaps learn a lesson from history? In the past kings would often have a “fool”, who because of the nature of his role was able to say the things that no-one else could, or would dare to. In business, to remain successful, we need the modern equivalent of a fool, to challenge the norms and ask the awkward questions. Ultimately it is the responsibility of the leadership of the business. At board level this should be part of the role of the non executive director, although too often they come from the same background as the rest of the board so reinforce rather than challenge the status quo.
But this is not just a board issue; it needs to cascade down the organisation. Recruitment policy should endeavour to ensure diversity, and management needs to support an environment where staff at all levels are encouraged to question the status quo in a productive way. The aim should be to become outward looking, watching what the market and competitors are doing, as well as scanning for those disruptive new products and technologies which could replace your own. I am not advocating change for changes sake, but while a successful business should capitalise on its success while it lasts, it should also be looking to the future by having a nursery of new products and services in development, to make sure that success continues.
So the question is do you have enough fools in your business?
Like this:
Tags: Business, Business Stagnation, Business Success, Company Directors, Directors, Human Resources, Management, non exec directors, Owner Managed, Small Business, Status quo, Successful Businesses
This entry was posted on 17/10/2011 at 12:01 pm and is filed under General Business Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.