I recently read a Harvard Business Review article by Donald Sull, in which he describes the self-imposed difficulties companies face when dealing with change. In his article, he disputes the common misconception that businesses freeze when confronted with disruption. He contests the problem of paralysis, and instead states that managers of besieged companies are actively aware of the threat, carefully analyze its impact on their business, and almost always unleash a flurry of initiatives in response. Despite all the activity, the companies still falter.
Why do good companies go bad?
Donald Sull says the reason is not an inability to take action but an inability to take appropriate action. He calls this “active inertia”. According to Sull, market leaders stick to the mode of thinking that brought them success in the past leading them to simply accelerate the tried-and-tested activities. In trying to dig themselves out of the situation, market leaders just make it worse.
Sull explains that when a business does well, all the positive feedback reinforces managers’ confidence that they have found the formula for success – the one best way – and it encourages them to focus their energies on refining and extending their winning formula. The original thinking that led to a company’s initial success is imprudently swapped with a devotion to the status quo. And when changes occur in that company’s immediate environment, the winning formula that brought success instead brings failure.
Sull goes on to describe the dynamic of failure, where four things happen. I summarize his four hallmarks of active inertia below:
1. Blinders
- Strategic frames are the mental models that shape how managers view their business. By focusing managers’ attention repeatedly on certain things, frames can seduce them into believing that these are the only things that matter. These frames become self-imposed blinders as they constrict peripheral vision, preventing managers from noticing new options and opportunities.
2. Routines
- Processes harden into routines. Once a certain way works particularly well, employees have a strong incentive to lock the process and stop searching for alternatives. The organization then follows the processes not because they are effective or efficient but because they are comfortable. Once it becomes a routine, alternative processes almost never get considered and active inertia sets in.
3. Shackles
- In order to succeed, every organization must build strong relationships – with customers, suppliers, employees, investors, and lenders. When conditions in the market shift, companies find that these relationships have turned into shackles: limiting their flexibility. The need to maintain these existing relationships can sometimes hinder companies in developing new products or focusing on new markets.
4. Dogmas
- A company’s values are a set of deeply held beliefs that unify and inspire its people. As companies mature however, these values harden into rigid rules that have legitimacy simply because they are enshrined in precedent.
Sull’s take on the dynamic of failure is interesting. He highlights the self-imposed blinders that conceal what is really going on in the external environment, and the routinized processes, webs of relationships and dogmas that prevent a company from taking appropriate action in times of change.
Success breeds active inertia, and active inertia breeds failure. So, is failure an inevitable consequence of success? No. Companies can overcome active inertia. Sull says that instead of asking “What should we do?” managers should ask, “What hinders us?”
Active inertia exists because the pull of the past is so strong. Trying to break that pull through a radical act can leave employees disoriented. It is instead better for managers to respect the company’s heritage, and build on it as they recast the old strategic frames, processes, relationships and values to meet new challenges of the ever-evolving market.
Donald Sull is a senior lecturer at the MIT Sloan School of Management and the author, with Kathleen M. Eisenhardt, of Simple Rules: How to Thrive in a Complex World (Houghton Mifflin Harcourt, 2015). You can check out more of his research and ideas at www.donsull.com
