It was interesting watching the IPL this year. Traditionally dominant teams fell by the wayside. Mumbai and Chennai — former champions and teams that usually dominate the whole tournament and inevitably end up in the playoffs — were at the bottom of the table. A brand-new team — the upstart Gujarat Titans not only did well throughout the season but went on to win the cup. The same applies in business: Great companies and great leaders cannot take their success for granted.
Consider Jim Collins’s business classic Good to Great. The book placed before us 11 companies that somehow combined the principles that Jim Collins laid out (the cause-and-effect piece still seems flaky) to build a great business. These were great companies, that if you borrowed the title of his earlier best seller, were ‘built to last’.
But soon after the book found its way to every CEO’s bookshelf, many of those ‘great’ companies started to falter. Gillette was bought over by P&G and P&G lost billions in value in subsequent years. Fannie Mae went almost bankrupt and needed a government bailout. Circuit City also went bust. And the remaining ones show no uniform signs of the ‘enduring greatness’ that Collins prophesied.
One path leaders can choose to prevent their companies from heading to the corporate graveyard is to engage in ‘creative destruction,’ a term coined by economist Joseph Schumpeter. Why is this important and how can leaders nudge their organisations in this direction?
Engage in creative destruction
Why does great become sometimes just good or even bad? A book every leader must-read is Lights Out: Pride, Delusion and the Fall of General Electric. Written by Wall Street reporters Tom Gryta and Ted Mann, it unmasks the ‘heroic and tough’ leadership model of GE and lays bare how success can turn to failure by leaders driven by their own ego.
A little over two decades ago GE was the largest company in the world with a market cap of over $600 billion. Today its market cap is less than $100 billion. In 2018, GE dropped from the Dow Jones Industrial Average — the only remaining company from the original list. The clues to why this happened are in the title of the book — pride and delusion. Many of the leaders who created the greatness in GE also contributed to its fall into mediocrity. Neutron Jack built GE into a conglomerate buying a variety of businesses. His “be number or number two in every business” mantra sparked an aggressive burst of growth.
On the flip side, some of his ‘fire the bottom 10 per cent’ kind of approaches created an intensely competitive internal culture that almost sounded the death knell for real collaboration. GE finally had to go outside its storied leadership pool to bring in Lawrence Culp to fix the mess. He’s still facing an uphill battle. One of the most significant things he did was engage in some creative destruction.
The very enormity of GE he found, had become its Achilles heel, and so he decided to split the company into three independent businesses. As Arnold Toynbee put it — nothing fails like success. Mumbai Indians had their worst season in the IPL. Perhaps a clue from a senior cricketer who remarked,“There are 11 individuals on the field, no team.”
Egos take precedence and hijack decisions. Delusion creeps in as leaders refuse to face reality. Welch’s successor Jeff Immelt was notorious for neither wanting to hear bad news nor give it. These are the warning signs leaders must watch out for.
Trigger creative destruction
She has to begin by questioning everything that has been taken for granted to trigger creative destruction. She has to be willing to get the holy cows out in the open. She has to be able to ask — why do we do this? Why do we make this? Why do we do this in this way? Why is this person doing this?
Management gurus CK Prahlad and Gary Hamel (Getting Personal About Change) described the fable of the four monkeys in the cage. Each time they climbed the stairs to reach the bananas suspended above, they were hit with a blast of cold water. They soon realise the connection and, in a few days, give up attempting to reach the bananas. One of the monkeys is replaced with a new one and at the same time, the water blasts are stopped.
The new fellow of course goes bounding towards the steps to reach the bananas only to be pulled back by the other three who want to save him from the water blast. A water blast, remember that has stopped coming. The new guy soon accepts this rule — bounding up the steps to reach the bananas is trouble. Over time each of the old monkeys is one by one replaced with a new monkey and each time the code is enforced — don’t reach for the bananas.
Eventually, there are four brand new monkeys in the cage — four monkeys remember who have never been blasted with cold water. The tempting bananas are still suspended but they’ve learnt to never reach for them. This is what happens very often in families, communities and certainly in business organisations.
So that urge to question “Why?” should never die. Leaders must periodically challenge not just processes, practices, and people but even entire businesses. Does the rationale that brought them into existence still remain? Sam Palmisano at IBM forced himself to ask those questions and literally switch off the hardware business — at that time the lifeblood of the organisation.
Take the case of Expedia as recounted in Dan Heath’s excellent book Upstream. In 2012, Ryan O’Neill who headed customer experience was startled by a number that popped up in his data analysis. Of every 100 customers who booked travel on Expedia, 58 ended up having to call for help. For a self-service website that is a disaster. For example, in 2012 alone 20 million customers called just to get a copy of their itinerary. Each call cost Expedia $5, so in effect, they were staring at a $100 million problem.
Nobody had thought to ask why. Ryan did and ended up creating a task force that ‘creatively destroyed’ the reasons that prompted customers call. He called the bluff on the ‘cold water blast’ and reached for the bananas!
Encourage creative destruction
One of the best ways leaders can build this culture, is to provide a licence to fail, to foster a culture where risks and mistakes are not a hanging offence. Satya Nadella’s push to get Microsoft more and more into the cloud was risky but his own humility and willingness to be vulnerable nurtured an atmosphere where to borrow from Robert Browning, people were willing for their ‘reach to exceed their grasp’.
Leaders must also be willing to examine traditional strengths — be it strategies, products or people — and subject them to the VUCA (Volatility, Uncertainty, Complexity and Ambiguity) test — how well do these stand up to a VUCA event? What successes can we harvest from failures?
Stewart Butterfield was CEO of the team that created the failed video game Glitch. The game bombed, but the chat and messaging functionality they created for players and their internal team morphed into a successful solution and business- Slack. Just a year after its launch, more than 5 lakh people from over 60,000 teams were using Slack every day. One business destroyed and a new one created.
Beyond this, leaders must realise that it’s not just their organisations that need to engage in some creative destruction, they need to subject themselves to the same journey. How do they personally reinvent themselves? Often it comes from letting go of famed strengths and deliberately entering a new zone. It comes from becoming a beginner again. Perhaps at the start of this month, former Facebook COO Sheryl Sandberg did just that!