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The Self-Destructive Habits of Good Companies

The natural evolution of the industry. … And How to Break Them

The clustering phenomenon. top managers
Things that lead to the habit
When #1 is also the pioneer. track records of success
Good companies possess:
The opposite scenario, when #2 chases #1. excellent competitive position

A company allows small niche players to coexist with it. The Big Idea outstanding products

The loyalty of a company’s supplier is won by a nontraditional competitor.. Why, then, do companies such as these go wrong?
The warning signs
New entrants, especially those from emerging economies, are underestimated. Habit #5: Competitive Myopia: A Nearsighted View Of The Competition
The company becomes helpless against a substitute technology.

Redefine the competitive landscape. Why You Need This Book it helps its readers diagnose and do away with these habits before they destroy the readers' companies.

Broaden the scope of the product or market.

Consolidate to squeeze out excess capacity. Breaking the habit

when they are unable or unwilling to change when their external environment changes significantly.
Counterattack the nontraditional competitors.
Why Do Good Companies Go Bad?
Refocus on the core business..
CEOs are directly responsible for the self-destructive habits their companies develop.

Denial of emerging technologies

The high-margin pioneer

The fast-growth phenomenon

Things that lead to the habit Denial of changing consumer tastes, preferences, and buying patterns
Things that lead to the habit Denial of the new global environment
The paradox of scale
The "I am different" syndrome "Hey, we're different, so there's no way it can happen to us."
The ball and chain of unintended obligations

Guideline-free, ad hoc spending

The warning signs The "not invented here" syndrome the company is too proud to admit that someone else has come up with a better way to do
Habit #1: Denial: The Cocoon Of Myth, Ritual, And Orthodoxy
The "looking for answers in all the wrong places" syndrome the company ignores, rationalizes, or blames others for its situation instead of admitting its fault.
Functional-level cost centers
The warning signs
Look for it
A culture of cross-subsidies
Admit it
Truth in numbers Habit #6: Volume Obsession: Rising Costs And Falling Margins Breaking the habit
Assess it
Identify where the company’s costs are.
Change it
Convert cost centers into revenue centers or profit centers.

Move from vertical integration to “virtual integration”

Outsource non-core functions to outsiders with appropriate economies of scale. Breaking the habit Exceptional achievement in the past

Reengineer to automate processes to improve cost efficiency. David conquers Goliath

Things that lead to the habit
Implement target costing The company pioneers a product or service

Become a world-class customer The people behind the company are, plain and simple, smarter

The company stops listening

The company flaunts it

The corporate ivory tower

Growth requires the institution of formal policies and procedures Habit #2: Arrogance: Pride Before The Fall The warning signs The company browbeats others
Things that lead to the habit
The company becomes high-handed and abuses rules and procedures
The founder’s culture is subsumed within a larger corporate culture
The company curries approval
A company’s culture is dominated by one functional specialty.
Rotate management to new challenges.
Implement nontraditional succession planning.
Breaking the habit
The warning signs Habit #7: The Territorial Impulse: Culture Conflicts And Turf Wars Diversify the talent pool
Change the leadership

Engage in effective internal marketing

Engage in effective internal marketing The company’s past success came via a regulated monopoly.
Breaking the habit
Create permanent cross-functional teams The company’s success was based on a distribution monopoly.
Things that lead to the habit
Reorganize around customers or products The company was “chosen” for success by the government.

The government owns or controls the business.

The company is in no hurry to make decisions.

Constantly challenge business assumptions and orthodoxies.
Denial The company’s processes are overly bureaucratic.
Create a hands-on leadership institute

Hire a professional executive coach who reminds you of the pitfalls of arrogance. Habit #3: Complacency: Success Breeds Failure The warning signs The company has a bottom-up, decentralized, consensus-based culture.

The company is completely vertically integrated.

Limit personal publicity. Arrogance
Enormous cross-subsidies are in place
Make sure that checks and balances are in place so no one has absolute power.
Reengineer to achieve high quality, eliminate waste, and reduce inefficiency.
Develop strong metrics to judge the level of complacency.
Institute performance-based compensation. Complacency
Breaking the habit
Rotate leaders from function to function.
Constantly migrate from current-gen technology to next-gen technology.

Expand core technology into other products and markets.

Competency dependence
Diversify competency into different markets or market segments. R&D dependence those who live by R&D die by it.
Ways To Prevent Each Of The Self-Destructive Habits
Grow through acquisition and integration. Design dependence
Things that lead to the habit
Put together a stand-alone business intelligence team. Sales dependence

Invest in alternative competing technologies. Competitive myopia Service dependence

Acquire peripheral or niche companies that are potential paradigm shifters. Efforts to transform the company have been futile.

Set up a reward system for the sales force based on account profitability. Habit #4: Competency Dependency: The Curse Of Incumbency The warning signs The thrill is gone and the company is in a funk.

Make procurement a strategic function, not an administrative one. Volume obsession Stakeholders are leaving.

Consistently and aggressively add new, higher-margin products to the portfolio. Find new applications

Implement a transparent and predictable method for succession planning. Determine new markets
Breaking the habit
Create a culture in which no one function is superior to another. Move upstream, downstream
Territorial impulse
Focus on an external driver to have functions operate as a coalition with a common goal. Jagdish N. Sheth Refocus company resources
Wharton School Publishing, 2007
Rotate people from that culture among the various functional silos. ISBN: 0-13-179113-3
270 pages