April 19, 2007

News & Opinion: Boom Goes Your Business (Failure - Part 2 in a series)

By: 800-CEO-READ @ 9:28 PM – Filed under: Management & Workplace Culture

Jagdish Sheth says his journey started as he tried to understand why so many companies that were highlighted in books like In Search of Excellence and Good To Great failed to have continued success. Sheth argues that companies acquire habits that lead to their fall. His latest book is called The Self-Destructive Habits of Good Companies...And How To Break Them.

Sheth says there are seven deadly sins that are destructive to corporations—Denial, Arrogance, Complacency, Competency Dependence, Competitive Myopia, Territorial Impluse, and Volume Obsession.

And if we are going to define "sins" then we need to talk about what is Sheth considers bad:
For our purposes, let's consider two aspects, or connotations, of "bad." The first is the more obvious and direct: bad means unhealthy, no good for you, contrary to your self-interest, or desctrutive. Behavior that makes your customers and suppliers resent you, that makes them seek out other business partners, seems clearly "bad" in this sense. Arrogance or abuse of stakeholders would seems to be good examples. But "bad" in the business arena can also suggest "lost opportunity." Here, perhaps complacency, or underestimation of the competition, causes you to fail to maximize your potential. Your behavior may not be "actively" bad, nor are you reviled by others in your community. But your vision has failed, and you have lost, or are about to lose, your chance.

Sheth continues by saying that all of these problems may not be caused by management, but it is their responsibility to fix them.

To give you an example of content and structure, here is the chapter summary on Competitive Myopia:

Competitive Myopia

Things that lead to competitive myopia:
  • The natural evolution of the industry
  • The clustering phenomenon
  • When No. 1 is also the pioneer
  • The opposite scenario: when No. 2 chases No. 1

The warning signs of competitive myopia:
  • You allow small niche players to coexist with you: You're focused on the big guys, so you don't see the niche companies as a threat.
  • Your supplier's loyalty is won by a nontraditional competitor: You fail to realize that your supplier can become your competitor.
  • You underestimate new entrants, especially from emerging economies: You fail to acknowledge the threat of new entrants.
  • You have become helpless against a substitute technology: The threat has always been there, but you have not reacted in time and must surrender.

How to break the competitive myopia habit:
  • Redefine the competitive landscape: You need to check the entire competitive perimeter to see where you are vunerable.
  • Broaden the scope of your product or market: Diversify by expanding the market for your existing products or by expanding your product lines in your existing markets.
  • Consolidate to squeeze out excess capacity: Decrease buyers' bargaining power by removing excess capacity from the industry.
  • Counterattack the nontraditional competitors: Return fire on a unique competitor by attacking its home turf.
  • Refocus on the core business: The "entrenchment" strategy may seem counterintuitive, but it allows you to concentrate limited resources in your most successful area.

There is something attractive in Sheth's conclusions. They remind us what what we don't like in people. I think they sound familiar given his heavy reliance on press accounts of these companies (Halo Effect warning).

I like Sheth's examination of the downside of business, but I am torn as to whether I have more knowledge to avoid the problems that Sheth lays out in the book or whether these emotion laden habits are really the root cause of failure.