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Thursday, June 21, 2007

The Self Destructive Habits Of Good Companies

On the flight from Singapore to San Francisco, read this absorbing book, “The Self Destructive Habits Of Good Companies”,by Jagdish Sheth, one of my favorite authors.

He starts by pointing out that life expectancy of American companies is declining, and that even some of America’s most respected firms are susceptible to failure. Jagdish argues that success too often breeds failure. He says he got thinking when Duane Ackerman, CEO of BellSouth asked him,how in less than five or six years, many of the companies praised inTom Peters’ book were in serious trouble—companies like IBM, Xerox, and Sears. He believed the tenets in the book—the ways for companies to be the best and posed a question why do good companies fail and seeded the idea of this lovely book.

Arie De Geus challenged the idea that companies must go through stages of life and eventually mature and fade away. Instead, he argued those that really succeed constantly adapt, having conserved the resources to allow that to occur

The book looks into how companies slip into "addiction" and slide off the rails,why some never turn around & how others achieve powerful turnarounds, moving on to unprecedented levels of success. Jag determines that the causes of corporate downfalls were often the self-destructive habits that companies had picked up on the road to success. He identifies seven bad practices that can lead to failure, including arrogance, complacency, competitive myopia and volume obsession. Each self-destructive behavior is illustrated by historical examples of once-successful corporations for whom the habit was their undoing. He then outlines strategies on how businesses can either prevent or break these habits

Jag postulates that six externalities bring about a change to business. They are regulation, capital markets, competition, technology, globalization and customers. When any of these external contexts changes radically and the company is either unable or unwilling to change, it often results in failure. The fastest moving externalities are regulation, competition, and capital markets, while the slowest moving ones are technology, customers, and, globalization.

He is very candid and insightful when he writes,” most companies come into existence by being opportunistic—call it entrepreneurial opportunity. They take all the credit, but it’s partly the environment and partly the individual. Company success is very much like human behavior—a result of nature and nurture. But managers refuse to say that they were blessed from above, and so they take all the credit for themselves. They succeed as long as the environment doesn’t change. The underlying theory is that many people in business succeed by accident and not by plan” The seven habits that are inherently self destructive that engulf orgnizations :

• The “cocoon” of denial
Find it, admit it, assess it, and escape it
• The stigma of arrogance
Escape this fault that “breeds in a dark ,closed room”
• The virus of complacency
Six warning signs and five solutions
• The curse of incumbency
Stop your core competencies from blinding you to new opportunities
• The threat of myopia
Widen your view of your competitors—and the dangers they pose
• The obsession of volume
Get beyond “rising volumes and shrinking margins”
• The territorial impulse
Break down the silos, factions, fiefdoms, and ivory towers

Finally he reminds that change management is the key and highlights three dimensions therein: The first is mindset change. The second is some form of reorganization. This includes eliminating or restructuring leadership’s responsibilities and restructuring the organization. HP went from a country-by-country profit & loss organization to, for example, global product management reorganization. Finally, the most critical change is the reward system

To a fault, the data are based on press coverage or published events but the analysis and message make this a compelling read – one that should help business executives to reflect a lot while running successful business.

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