Three ways in which success can be bad for business.
"It would be difficult to overstate Toyota's role in shaping the modern approach to quality improvement," writes Robert Cole in MIT Sloan Management Review, citing methodologies used by the company that laid the operational groundwork for Japanese total quality control. "TQC, in turn, provided the basic building blocks for the Six Sigma methodology, which has been actively embraced by leading U.S. companies such as GE and Boeing."
Then, in 2009, it all came tumbling down. That year, Toyota recalled more than 7 million vehicles for problems ranging from sticky gas pedals to ill-fitting floor mats. More than a dozen separate Toyota recalls followed in 2010, when 36 percent of non-Toyota drivers said they considered the cars unsafe. What caused this massive quality meltdown at Toyota? Harvard Business School professors Francesca Gino and Gary Pisano have an idea: too much success.
"Toyota, which built its vaunted production system around vigorous learning, was much better at uncovering the causes of its problems than of its success," Francesco and Pisano write in Harvard Business Review. "This was revealed by its recent recalls, when its leaders admitted that their success in pursuing higher sales and market share had blinded them to the fact that operations had essentially compromised quality to achieve growth."
What the Toyota case study reveals, Francesco and Pisano argue, is a critical weakness shared by most successful leaders: failure to learn from success. Here are three reasons why they say doing well can be bad for business.
1. Fundamental attribution errors. We assume that our talent or strategy is responsible for our successes, giving short shrift to environmental factors and luck. "Any number of factors may lead to success, independent of the quality of a product or management's decisions," Gino and Pisano note. "Yet it is all too common for executives to attribute the success of their organizations to their own insights and managerial skills and ignore or downplay random events or external factors outside their control."
2. Overconfidence bias. Success begets hubris, and we all know where that can lead. "Overconfidence inspired by past successes can infect whole organizations, causing them to dismiss new innovations, dips in customer satisfaction, and increases in quality problems, and to make overly risky moves," the Harvard profs observe. "Consider all the companies that grew rapidly through acquisitions only to stumble badly after biting off one too many; and the countless banks that made ever-riskier loans in the past decade, sure of their ability to sort good borrowers from bad."
3. Failure-to-ask-why syndrome. No one's asking the tough questions that transform a success into a replicable strategy. "When you're confronted with failure," Gino and Pisano explain, "it's natural to ask why disaster struck. Unfortunately, success does not trigger such soul-searching. Success is commonly interpreted as evidence not only that your existing strategy and practices work but also that you have all the knowledge and information you need."