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WHY GOOD COMPANIES GO BAD

BY DONALD N. SULL

´When business conditions change. the most successful companies are often the slowest to adapt. executives must understand the true source of corporate inertiaµ Successful companies ² big changes ² fail to respond effectively unable to defend themselves against competitors armed with NEW ¶paralysis· . To avoid being left behind.

even in response to dramatic environment shifts y Companies fail to act y Symptoms & Sources .Why they Fail ? Problem is not an inability to take action but an inability to take ¶appropriate action·. Reason .¶Active Inertia· Inertia .tendency of an object to resist any change in its state of motion or rest y Active Inertia .An organizations tendency to follow established patterns of behaviour.

VICTIMS OF ACTIVE INERTIA y ´The fresh thinking that lead to the companies initial success is often replaced by a rigid devotion to the status quoµ y FIRESTONE y LAURA ASHLEY .

FIRESTONE y Tyre Industry y 7 decades of leadership in the U. market y Positioning & Strategy y Customers ² Competitors ² Challenges ² Culture y Clear formula for success .S.

FIRESTONE y Michelin entered U. market y Radial Tyre y Firestone responded quickly y Invested $1 billion ² Radial Tyre . S.

FIRESTONE y Problem ² Clung to old ways of working y No redesign y Delayed closing of factories producing normal tyres y Consequences ² 59% plant utilization y Active Inertia y Loss.Reduction in market share y Bridgestone took over .

LAURA ASHLEY y Garment Industry y 1953 in Britain y Major retailer ² 500 shops y Romantic vision of English Ladies y Tradition y Good management. Generous wages. Close relationships .

LAURA ASHLEY y Problems y Change in fashion concepts y Less demand for romantic wardrobes y Transformation in apparel industry ² outsourcing y Laura Ashley ² outdated designs & expensive manufacturing process y Active Inertia .

LAURA ASHLEY y Reacted to Challenges y Restructuring plan ² increase sales & cut costs y 7 CEO·s in a decade y Still continued to decline .

FOUR HALLMARKS OF ACTIVE INERTIA y Strategic Frames Blinders Assumptions how managers view business y Processes Routines Shackles Way things are done y Relationships Ties to employees. supplies. customers. . distributors & shareholders. y Values Dogmas Set of shared beliefs determining corporate culture.

STRATEGIC FRAMES y Mind sets of managers BLINDERS y Answers about business. competitors & customers y Seduce the managers y Managers fail to see new options and opportunities y Examples: France·s Military Strategy Xerox Management .

we stop alternatives. .PROCESSES ROUTINES y Once we find a way. y Reasons: Frees time and energy Increases productivity Operational predictability y Well known and Comfortable y No alternatives & active inertia sets in.

y Examples: 1. customers & suppliers. limit flexibility of relationships. Airlines . Apple 2.RELATIONSHIPS SHACKLES y Building strong relationships with lenders. y Changing conditions. investors. y Managers are constrained. y Focusing on new products and markets becomes difficult. DELL Computers 3.

VALUES DOGMAS y Values are a set of deep held beliefs that unify that unify and inspires people. defining how employees see themselves & employers.& are no longer inspiring. Examples: 1. y As companies mature. Polaroid 2. y Unifying power degrades leading to active inertia. values become rigid rules & regulations. Shell/ Royal Dutch .

Old ways of working cannot be thrown out immediately. OR. Combining both perspectives allowed good companies to passage along a new formula for success.AS CHANGE LEADER y To guide a company through changes balancing act y y y y y required. as they end up doing more harm. Inside managers break free from old.Assemble management teams that leverage leveraging strengths of both insiders & outsiders.INSIDE-OUTSIDER. .formulas & follow a new course. Recommended that new leaders may be from within the company but outside core business.

It is advocated that changes occur gradually rather than a rapid change. Instead of ´What we should doµ ask ´What hinders us?µ As obstacles are realised impulse to rush forward must be resisted. Lou Gerstner of IBM . Goodyear Tyres 2.RENEWAL. Break free from assumption that the enemy is paralysis. NOT REVOLUTION y Success breeds active inertia & active inertia breeds y y y y failure. y Example 1.

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