Why do good companies go bad? It’s often assumed that the problem is paralysis. Confronted with a disruption in business conditions, companies freeze; they’re caught like the Donald N. Sull is an assistant professor of strategic and international management at London Business School.
proverbial deer in the headlights. But that explanation doesn’t ? t the facts.In studying once-thriving companies that have struggled in the face of change, I’ve found little evidence of paralysis. Quite the contrary. The managers of besieged companies usually recognize the threat early, carefully analyze its implications for their business, and unleash a ? urry of initiatives in response. For all the activity, though, the companies still falter.
The problem is not an inability to take action but an inability to take appropriate action. There can be many reasons for the problem – ranging from managerial stubbornness to sheer incompetence – but one of the most common is a condition that I call active inertia.Inertia is usually associated with inaction – picture a billiard ball at rest on a table – but physicists also use the term to describe a moving object’s Copyright © 1999 by the President and Fellows of Harvard College. All rights reserved. art work by edwina white THINKING ABOUT… tendency to persist in its current trajectory.
Active inertia is an organization’s tendency to follow established patterns of behavior – even in response to dramatic environmental shifts. Stuck in the modes of thinking and working that brought success in the past, market leaders simply accelerate all their tried-and-true activities.In trying to dig themselves out of a hole, they just deepen it. Because active inertia is so common, it’s important to understand its sources and symptoms. After all, if executives assume that the enemy is paralysis, they will automatically conclude that the best defense is action.
But if they see that action itself can be the enemy, they will look more deeply into all their assumptions before acting. They will, as a result, gain a clearer view of what really needs to be done and, equally important, what may prevent them from doing it. And they will signi? - antly reduce the odds of joining the ranks of fallen leaders. Victims of Active Inertia To see the destructive potential of active inertia, consider the examples of Firestone Tire & Rubber and Laura Ashley. Both companies were leading players in their industries, and both failed to meet the challenge of change – not because they didn’t act but because they didn’t act appropriately. As Firestone entered the 1970s, it was enjoying seven decades of uninterrupted growth.
It sat atop the thriving U. S. tire industry, alongside Goodyear, its crosstown rival in Akron, Ohio.Firestone’s managers had a clear vision of their company’s positioning and strategy. They saw the Big Three Detroit automakers as their key customers, they saw Goodyear and the other leading U. S.
tire makers as their competitors, and THINKING ABOUT… w h y g o o d c o m pa n i e s g o b a d The women’s apparel maker Laura Ashley also fell victim to active inertia. The company’s eponymous founder spent her youth in Wales, and she started the business with her husband, Bernard, in 1953 as a way to re-create the mood of the British countryside.The company’s garments, designed to evoke a romantic vision of English ladies tending roses at their country manors, struck a chord with many women in the 1970s. The business grew quickly from a single silk-screen press in Laura and Bernard’s London ? at to a major retailer with a network of 500 shops and a powerful brand the world over.
Laura Ashley expanded her tiny operation not to maximize pro? ts but to defend and promote traditional British values, which she felt were under siege from sex, drugs, and miniskirts in the 1960s. From the beginning, she and Bernard o. u s exercised tight control atu over all aspects e st h of the to t tion business, devo keeping design, by a rigid manufacturing, distribution, and retailing in-house. The couple opened a central manufacturing and distribution center in Wales, and they proudly labeled their garments “Made in Wales. ” They provided generous wages and bene? ts to their employees, thereby avoiding the labor unrest that crippled many British industries throughout the 1970s.
They also established close relationships with their franchisees and customers, who grew ? ercely loyal to the company’s products and the values they embodied.When Laura died in 1985, Bernard kept the company on the course his wife had set. Fashion, however, changed. As more women entered the workforce, they increasingly chose practical, professional attire over Laura Ashley’s romantic garb.
Competitors publicly dismissed the Laura Ashley style as better suited to milkmaids in the 1880s than CEOs in the 1980s. At the same time, apparel manufacturing was undergoing a transformation. With trade barriers falling, fashion houses were rushing to move production offshore July–August 1999 Firestone was not taken by surprise they saw their challenge as simply by the arrival of radials.
