The Idea in Brief
Many leading companies plummet from the pinnacle of success to the depths of failure when market conditions change. Because they’re paralyzed? To the contrary, because they engage in too much activity—activity of the wrong kind. Suffering from active inertia, they get stuck in their tried-and-true activities, even in the face of dramatic shifts in the environment. Instead of digging themselves out of the hole, they dig themselves in deeper.
Such companies are victims of their own success: they’ve been so successful, they assume they’ve found the winning formulas. But these same formulas become rigid and no longer work when the market changes significantly.
When companies understand that action can be the enemy, they are less likely to join the ranks of the fallen. Before asking, “What should we do?” and rushing into action, managers should ask, “What hinders us?” They should look deeply at the assumptions they make about their business and industry. And they should pay particular attention to hallmarks of active inertia: strategic frames becoming blinders, processes hardening into routines, relationships becoming shackles, and values hardening into dogmas.
The Idea in Practice
The following examples demonstrate the disastrous effects of active inertia:
- Strategic frames become blinders. Strategic frames shape how managers view their business; they help managers stay focused. But these frames can also blind managers to new options and opportunities.
Example:
After seven decades of uninterrupted growth, Firestone reigned supreme in the U.S. tire industry in the 1970s. Then Michelin introduced the safer and more economical radial tire. Firestone competed with Michelin head-to-head in Europe, but was blind to the threat to its core U.S. market, and so continued to produce conventional tires only. Firestone lost significant market share and was acquired a decade later. Example:
McDonald’s built its success on standardized processes, all dictated by headquarters. By rigidly following these procedures into the 1990s, McDonald’s lost market share to Burger King and Taco Bell, who were much quicker to meet customers’ changing desires for healthier foods. Example:
Apple’s vision of technically elegant computers and its freewheeling culture attracted the world’s most creative engineers. Once computers became commodities, however, the company’s health depended on cutting costs and speeding up production time. But Apple’s engineers refused to change, and the company’s relationship with its “star” employees damaged its ability to respond to market changes. Example:
Polaroid placed very high value on cutting-edge research—to the point of defining itself by that research. Eventually, that value turned into dogmatic disdain for marketing, finance, and even customer preferences. The company’s single-mindedness nearly destroyed it.
One of the most common business phenomena is also one of the most perplexing: when successful companies face big changes in their environment, they often fail to respond effectively. Unable to defend themselves against competitors armed with new products, technologies, or strategies, they watch their sales and profits erode, their best people leave, and their stock valuations tumble. Some ultimately manage to recover—usually after painful rounds of downsizing and restructuring—but many don’t.