Greek mythology tells us about the legend of Icarus who was endowed with the power of flight when the gods gave him a pair of wax wings. Unfortunately, our Greek hero literally got carried away with himself and recklessly flew too close to the sun, which melted his wings, causing him to plunge to his death.
The Icarus fable encapsulates why business success is itself so often the very cause of failure. The dynamics of success and ensuing failure are well described by Pro Danny Miller of McGill University in his book The Icarus Paradox. According to Prof Miller, it is not apathetic inactivity that causes the downfall of successful companies, but too much activity of the wrong kind. Successful companies fail to employ discipline in applying their special attributes, and by overextending their use, create their own downfall.
Dr Miller divides the scenarios of self destruction into four archetypes, as firms descend into trajectories of decline when they become obsessed with one, all powerful, approach. Craftsmen - efficient, quality driven companies - become tinkerers - - overly parsimonious, with stale product lines, and irrelevant quality features.
Digital Equipment Corporation (DEC) is an example of this type. A former DEC engineer is quoted as saying that their machines were "the most over-engineered and undermarketed in the field".
Builders become imperialists. At the builder stage, these companies are often led by strong entrepreneurs who put together complementary businesses, and thrive on controlled growth. However, the imperialist phase takes over as growth minded leaders increase the pace and scope of expansion beyond the resources and capabilities of the company.
An example is Saatchi & Saatchi which overreached itself in the mid 1980s by paying too much for the Ted Bates Agency, just so S & S could become "the largest ad agency in the world"'.
Pioneers (who become escapists) are energetic, flexible and often centred on R&D, usually initially led by optimistic visionaries, like Steve Jobs of Apple. However, escapism ensues when pioneers retreat into themselves and invention gets out of hand, losing touch with economic rationality and market requirements.
The Apple Lisa computer at a price of $10,000 was too steeply priced for the home user, too inflexible for engineers and professional users, and unsuited to the business market.
The fourth trajectory is that of salesmen who become drifters, as their once differentiated image, based on design, quality, customer added value and a high morale culture, produces a complacent belief that the company can sell anything.
Examples are IBM, Proctor & Gamble, and Chrysler in the mid 1980s. The decline of salesmen is usually slower than the others, because they tend to be powerful, conservative and well established companies.
In each archetype,, the underlying roots of failure stemming from success are similar. The company becomes obsessed around the central theme of its success. That makes it difficult to unravel when industry and competitive conditions demand change.
The implementation of the successful strategy becomes institutionalised, embedded in all systems and routines. These routines become ends in themselves rather than a way of achieving the goal of competitive advantage through a superior strategy.
The skill set of the company becomes narrower and narrower, compromising the flexibility and diversity that may be needed to reorient the company, like an overbred animal which cannot adapt to different environments.
Unlike failure which forces self-examination, success can intensify preconceptions, especially when leaders become icons and appear on the covers of business publications. Like the "curse of Hello" when the rich and famous are portrayed in their married bliss, only to end in divorce or scandal revelations months or even weeks later, an appearance by a CEO on the cover of Fortune is often followed by trouble in the company. However, some others are not so wary. They begin to believe passionately in their own superiority, thinking they are invincible, resenting challenges and isolating themselves from bad news. Those who dare to suggest that all is not well may be denounced.
How do erstwhile successful companies tend to react when they finally recognise they have a problem? The company often dismisses events as once-off blips rather than as deep-seated phenomena that signal a sea-change in their industry.
The problem is that environmental changes take place slowly, and imperceptibly to those who, blinkered by their own success, fail to take notice. Such environmental changes are referred to as "inflection points" by Andrew Grove of Intel.
Inflection points are changes in industry dynamics. These can create a "valley of death" for industry leaders, unless they abandon a formerly successful formula and find a new one.
The final crunch is that companies persist in pursuing what is now a patently failing formula, not because they really believe it will work. It is just that their monolithic strategic architecture has left them bereft of any alternative solutions.
The downfall of once great companies echoes the downfall of civilisations. The historian Arnold Toynbee has argued that the declines of civilisations were due to the very institutions and practices that originally led to their ascendance. Greatness gave rise to complacency and oppression, and ultimately dissolved into "perverse idolatries". Like Icarus, they were dazzled by their own success.
Eleanor O'Higgins is a lecturer in stategic management and business ethics at the Graduate School in UCD.
