Every year, Fortune magazine publishes a list of "most admired" companies. I call that list the "kiss of death" because much of the time the companies thus recognized start having major problems immediately afterwards. I'm not the only one who's noticed this. A 2015 study of the companies on Fortune's 2001 "most admired" list found those firms "significantly underperformed" most index portfolios.

Why do so many "admired" companies go suddenly south? Primarily it's because they're admired for being successful, and being successful today is frequently a huge impediment to being successful in the future. 

A company that's starting from scratch can pivot pretty easily to whatever strategy and tactics make sense as conditions change. A successful, established firm, on the other hand, can't pivot until it first "unlearns" the behaviors that made it successful originally.

This is extraordinarily difficult because successful companies are full of employees that share common beliefs about the business world and the role the company plays within its industry. And because they're human, employees tend to sort information as true or false, useful or useless, etc. depending on whether that information supports or negates those beliefs.

For example, Facebook's management (and personnel in general) failed to observe that their application was wreaking havoc on elections because Facebook's culture tends to view connectivity and peer-to-peer sharing of information (and the consequent gathering of user information) as Very Good Things--because that's what made them successful. Facebook is now going through something of an identity crisis as it continues to struggle, awkwardly at best, with a growing realization that maybe those core beliefs aren't entirely valid.

Once a set of beliefs takes hold, it's difficult for successful organizations to change because while individuals inside the organization may be open-minded enough to consider contrarian positions, there is overwhelming peer pressure to "normalize" back to the conventional beliefs that everyone "knows" made the company successful.

I experienced this first hand a couple of decades ago, when I was a market researcher inside a huge computer company, which had been wildly successful selling minicomputers, which were small mainframes popular in the 70s and 80s. When I say "wildly" I mean like crazy successful.

As I saw it, my job as a market research analyst was to accurately report on market trends. The most important slide in my presentation showed that global revenue from minicomputer sales had been flat over the past five years, while global revenue from PC sales had grown more than doubled.

Just to make it clear how obvious this slide was, here's an approximation:

Now, you'd think anybody seeing that slide would conclude that the company should at least consider shifting from a strategy based on selling minicomputers to a strategy based on selling PCs, or maybe services for PCs or something. Or something, anything, having to do with PCs.

Whenever I showed this slide, however, the people in the room would express surprise, ask for details (which I would provide) and then, when my presentation was over, would return to the topic at hand, which was how to sell more minicomputers. 

I found this persistent denial or reality so frustrating that I asked my boss--a very savvy guy--what was up with that. He explained: "Geoff, your job isn't to tell them the truth; your job is to tell them the truth that they want to hear." The company went bankrupt a few years later.

I eventually came to realize that the source of the denial was the company's prior success. Shifting the product strategy would mean that top management had been blind for a decade (which was true). It would also mean that much of the expertise in the company would be obsolete (which it was.)

Over the past five years, I've seen this "do what made us successful in the past" attitude in many sales and marketing organizations. For example, there's ample evidence that cold calling doesn't work any longer. Nevertheless, I keep running into sales organizations whose primary lead generation method is cold calling because it worked so well in the past.

The exact same thing is true when it comes to personal success. A lot of successful people end up like child stars who can't make the transition to being adult actors. They find ONE thing that makes them successful and keep doing it, even as it produces diminishing and even negative returns.

In a world where everything changes quickly, if you're not reinventing yourself and your company every couple of years, you might as well give up now and save yourself the effort.

Published on: Nov 27, 2018
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