Blinded by Success: Why Great Companies Stumble

A company is among the most admired in the world. Everyone knows—and wants—its products. Its CEO beams from the covers of dozens of business magazines.

But three or four years later, the company is in a death spiral.

Time and time again, it happens. For some companies, like GM, it’s a slow burn. But for many—Blockbuster, RIM—it’s a fast fall from top to bottom. The latest casualty, J.C. Penney, had been stagnating for years when it brought in a superstar leader from Apple to infuse new life. But the changes during his short tenure left the retailer on a ventilator.

It’s hard to believe managers who appear so talented get it so wrong. Disruptive technology is often involved in these flameouts, but the biggest threat is internal, according to Sydney Finkelstein, Professor of Management at the Tuck School of Business at Dartmouth and Faculty Director of the Tuck Executive Program.

“The reason Motorola stumbled, for example, had nothing to do with tech, but people,” Finkelstein recently explained in an online masterclass. The company licensed its technology to companies that only eroded its dominance. And in what seems an ad for management arrogance, Finkelstein called attention to one of its slogans: 43 million analog customers can’t be wrong.

Finkelstein, the author of Why Smart Executives Fail and Think Again: Why Good Leaders Make Bad Decisions and How to Keep It From Happening to You, noted that the more successful a company becomes the more likely it is to be blinded by that success when making decisions. When you build a business on a certain model, you have to go against your own culture and history to change. People rely on what’s worked for them in the past to make decisions for the future.

Another problem is risk-aversion. “As you succeed, you become more cautious and focus on incremental improvement, and that means you might miss out on broader, more secular changes going on in the marketplace,” said Finkelstein. Many experts maintain that continuous improvement and a single focus are essential to succeed, but Finkelstein disagrees. “I think that’s dangerous,” he said. “Better to have two or three goals—you need to do more than one thing right.”

Missing the Chance to Pivot

In other cases, leaders of high-flying companies had opportunities to work with or buy out the companies and entrepreneurs that eventually hurt their businesses. At one point, Blockbuster could have bought Netflix, which later knocked them aside with a new delivery model. Finkelstein also told the story of the legendary Schwinn. After 97 years, the family-owned bicycle company filed for bankruptcy. One of the nails in its coffin was not moving fast enough into the mountain bike market, even though Schwinn execs early on had met one of the founders of that movement, Gary Fisher. And dismissed the longhaired Californian as no threat. British Airways had a similar take on Richard Branson.

Change is a constant, and disruptive technology is affecting and will continue to affect just about every industry. It’s up to leaders to stay aware, stay humble and, most of all, to act. Says Finkelstein. “Leaders almost always know what needs to change. In failing businesses they just don’t do it.”