Why Good Companies Go Bad How Great Leaders Remake Them

Or … Shooting Donkeys to Reinvent Your Company

Steve Kayser interviews Donald Sull, author of “Revival of the Fittest,” and professor at the London Business School. Donald was at Harvard Business School when this book was published.

You know the company.

It’s yours, or may have been. An industry leader.

Once.

Competitors emulate it. Analysts preach the company gospel. The CEO’s mug is on every magazine cover. Stock prices soar above the Milky Way. Then …

CRASH

Sales and profits nosedive. Talented employees jump ship. The stock price plummets below sea level. The company spirals down the abyss to an inevitable crushing collapse.

Inevitable? Maybe. Maybe not.

Are there practical new models out there to effect change and extend a company’s life? To revitalize, rebuild and transform a company into a market leader again? Plans to keep a good company from going bad?

Donald N. Sull, Harvard Business School Press author of “Revival of The Fittest: Why Good Companies Go Bad and How Great Managers Remake Them” will answer these issues in an easy-to-read “Shoot the Donkey” – style interview format, combining theory, real-life examples and practical advice.

But first …  RING  

“Steve!”

The nightmare began … again.

My tranquility and anonymity were disrupted by a vacuous voice from the past. A voice I thought I’d successfully exorcised and banished forever in the Shooting the Donkey in the Complex Sales Process … Part II.

As soon as I heard the voice, my stomach began to churn. I wanted to hear that voice about as much as Osama bin Laden wanted to hear, “Yo Osama, Whazzup?” from the U.S. Navy Seals

My immediate response? (Besides falling to my knees in supplication to a merciful deity.)

Complete and utter silence.

“Steve! I know you’re there. It’s me. Pick up.”

I knew who it was. Too well.

For readers of the “Shoot the Donkey” columns, you know him as CAL 9000. For all you others … he’s a corporate salesperson that can unleash a tornadic swirl of immeasurably long and undecipherable words lasting upwards of five minutes without taking a breath. Not even a miniscule pause, which is, in my opinion, always his most singular accomplishment, as I usually have no idea what he is trying to say.

I will admit, however, Cal has the most impressive repertoire of corporate gobbledygook I’ve ever heard. He uses every acronym known to mankind, and possibly most extraterrestrials.  A corporate gobbledygook automaton of epic proportions. The best there ever was … or will be.

Because of this talent, I dubbed him …

“CAL 9000” (Corporate Automaton Linguist) — 9,000 pre-programmed acronyms for release upon the slightest provocation – such as an unqualified sales lead.

What?  ( I despairingly choked out.)

“You know who this is?“

My muffled grunt sufficed for an affirmative answer.

“Just wanted to call and thank you. I finally closed a big deal! Huge buckaroos pal. Thanks to what I learned from your articles and interviews,” exclaimed Cal.

A look of bewilderment crossed my face. Cal 9000 had finally closed a complex sale? What are the chances?  About the same as Warren Buffet and Jimmy Buffet being related I suspected (…and they are). I was tempted to bolt out and buy a lottery ticket.

“I used Dave Stein’s strategies from your interview, combined it with Skip Press’ Hollywood storytelling advice to keep my message simple, direct and, as much as possible, free of corporate acronyms,”Cal went on.

Cal had actually read, reviewed, and used the information? Now I was intrigued. This only happens in the movies. But …

I smelled a rat.

“I took inspiration, heart, and motivation from Antonia Maria and John Tuft’s story about overcoming adversity.”

For a brief second I detected a pause. I knew it wasn’t for a breath, because Cal has a five-minute non-stop, non-breathing, word-spewing capability that’s rarely, if ever, taxed.

“Did you ever find out what happened to Antonia Maria?”

Silence.

“Truly sorry to hear that.”

For a second, I was touched. Touched by what I perceived to be the slightest bit of human emotion. If so, it would be the “first” for Cal.

But, I still smelled a rat. Effusive praise always makes me suspicious.

“And that Ken Sutherland … what a character! But he was wrong about those cigars he said tasted like sh–.”

I interrupted him with a cough. This is a respectable publication.

“I liked the taste of them. Yes, he’s quite a character isn’t he?”

I knew it. A rat. Here comes a devious, insidious attempt to weasel something out of me.

“I thought you were never going to call again. We had a deal,” I said.

Cal laughed. It was a terrible thing – like the synthesized, machine-gun chuckle of a dying 70’s TV robot.

“I just sung your praises and you think I want something?”

“Yes.”

An awkward pause.

“Well, since you mentioned it … because of my success, I’m now CEO in another company.”

Bowl me over with an M&M. I knew it. The global economic crisis did have an underlying cause.

“Huh?” I managed, clearly in a state of stunned discombobulation.

“That’s right, CEO of a market leader.  We produce a universal Enterprise Content application tool with extensible, real-time, interactive, scalable, multi-alphanumerical particularities supported by multi-colored platforms. That’s why I’m calling you. My job is to lead this company into the future.”

He said that in 1.237 seconds (I timed him). Cal had backslid into his former corporate automaton gobbledygook.

“In English please? Market leader of what?” I asked.

A longer pregnant pause. I detected he was trying to simplify the gobbledygook. It was quite a strain on him.

“C’mon, you can do it,” I said encouragingly.

“T…. (stuttered) T….  (stuttered again) T…. (then finally) Typewriters.”

“Typewriters?”

“Yes,” said Cal, a bit more subdued. “ We’re a market leader but market share has dropped considerably.”

Then, with a sudden burst of irrepressible zeal, 

“I’m here to re-invigorate, revitalize and lead this company back to its former state of glory.”

Zeal is fit for wise men, but flourishes chiefly among fools. –  John Tillotson

Once again, I think to myself, typewriters? That’s surely not what I heard.

“And Steve, that’s where I was hoping you could help me. You always seem to be able to come up with experts to give objective advice, strategies and tactics. I need someone that can give me real-life case studies, practical advice and examples of companies revitalizing! Rebirthing! What do you say?”

“Gotta go.”

“Hold on. Hear me out.”

I did a quick web search and found out that one of the last U.S. manufacturers of typewriters filed for bankruptcy in 1995. Inexpensive personal computers obliterated the typewriter market.

“Best to you. Gotta go. Bye.”

“I have a plan. I really just need someone to troubleshoot it for me.”

Great. He has a plan to revitalize a company that sells typewriters. This ought to be good.

“I’ve penned 397 commitments so my employees, investors, partners and customers will understand our new vision,”said Cal.

“How many are priority commitments?”

“All 397. I’m serious about this.”

And … there was more.

“I’m going to take this company back to our roots. Focus on what made us successful in the beginning. Bringing in a lot of old-school executives. All blue-suited power executives, just like me. We need the structure.”

“Why?”

I swear I heard an amazingly loud vacuum suction on the other end of the line. Thinking was taking place. I knew it.

“Why? Let me count the ways. Because it worked last time, it worked in my last job, it always works in theory, it worked for my competitors, and … I’m sure it’s worked for GE before.”

For every complex problem there is an answer that is clear, simple, and wrong. –  H.L. Mencken

I interjected, “But times have changed. Maybe you should consider another business?”

“Nope,” stated Cal emphatically. “I’m going back to the roots. Leverage our relationships, resources, processes, values. Tried-and-true activities that have worked in the past. Our success formula.”

Is it dense in here? I decided to try reason, logic.

“Have you considered exiting this business and using your company’s expertise in a new endeavor? Do you have, maybe, a side-product or another venture to pursue?”

Cal huffed, I heard him suck in a large portion of the oxygen over North America.

“No! No! No!”

But, there was a hesitant, memo-cerebrating (and yes, I made that word up) silence.

“Well, there is one other business unit here. I just eliminated the rest, but this one I kept because I … I sponsored it.”

“And it is?” ( I’m guessing re-manufacturing of the Ford Model “T” )

“Well Steve, I’m a little chagrined. Keep this private. Swear?”

“Absolutely. Won’t tell a soul. Couldn’t drag it out of me.”

“We have a forensic DNA testing, analysis, identification and certification service we’ve invested in and is actually making money – a lot of it.”

Now it’s time for me to take a deep breath. How in the world could these two business models match up? Can’t. Nowhere. No way. No how.

“I’m a little embarrassed because I didn’t quite do my research on it before plowing investment into it.”

“What do you mean?”

“Well, I heard it involved the letters A, T, C, G,  letters are our specialty you know, and that would enable us to leverage the rest of our letters in different ways … always a visionary here. Thinking ahead.”

It’s not me. It is dense in here.

“But actually, (serious hesitant pause here) I thought it was hooked into the NBA. There are some similarities. I just assumed that …”

Hooked into the NBA? As in the National Basketball Association?  DNA. NBA. DNA. NBA. DNA. NBA?

“They do share two consonants and the same vowel, ‘A’,” I replied.

“Exactly. Exactly. I knew you’d get it. You’re a deep thinker like me.”

He knew I’d get it. Deep thinker like him.

My mind went to thoughts of hurling myself off the Sears Tower. It’s only 110 stories, I reasoned, 1,450 feet to the bottom. Would that be enough?

“Do you think, maybe, that the desktop computer for producing documents isn’t going to go away? It is easier to use, is globally accepted, and might make your revitalization efforts difficult?” I suggested.

“That’s exactly why the board selected me to lead this effort. I excel at the difficult things. I’ve already started. I’m building a huge new corporate headquarters to symbolize our determination. I’ll be on the cover of Fortune or Forbes shortly.”

Right. And I have a picture of Houdini locking his keys in his car. And Babe Ruth going Vegan.

“Best wishes to you. Gotta go.”

Cal persisted.

“You can’t. You have to help me.”

“No.”

CLICK – I hang up. Of course I did it politely. A gentle click, as opposed to a violent slam-dunk  click.

DING – My e-mail pops up.  A message from Cal. Or rather a picture. I open it.

RING – my phone. Cal.

“Yes, that Ken Sutherland is quite the creative fellow isn’t he?”

My eyes widen as I see a picture that is obviously my face but not my …

“He told me he had pictures of you riding the mechanical bull in Dallas, after you lost your bet with him, and, without anything on under …”

GRAPHICAL MISREPRESENTATION – REAL PICTURE UNABLE TO BE SHOWN.

“That’s not me …” I said, mortified. “It’s been altered!

“Sure looks like you. You have a twin brother? Well, you know that Sutherland, he is a “noted” artist. Looks just like you … and, as an aside, I have this attached to a personalized 1:1 marketing campaign to 3,235 magazines, trade publications and newspapers. Be a shame to press the – ”Send” – button. Unless, of course, you really need the PR.”

So … here I go again. Really have to use the key principle this time.

The Shoot the Donkey key principle of “taking decisive action to remove all obstacles to fulfill your mission” is based upon a real-life incident portrayed in the movie “Patton.” Winners, leaders, and innovators know how, why, when and where to “Shoot the Donkey.” 

But this is going to take some major-league Donkey-Shooting.  We’re talking a DNA-NBA Typewriter Business Model. That’s got focus and opportunity written all over it.

Where could I find an expert that has done extensive global market research, studied real-life companies and their attempts to transform and revitalize themselves? Where could I find someone who could articulate clearly the challenges, strategies and tactics necessary to revitalize a company … or convince Cal to move on to less challenging opportunities?  Like CEO of the Pony Express or the Cincinnati Bengals?

ENTER:  Donald N. Sull, Harvard Business School Press author of “Revival of The Fittest.”  

Donald studies how managers transform companies to respond effectively to changes in their competitive environment. He also serves as an adviser to firms in the United States, Europe, and Asia. Before entering academia, he worked as a consultant with McKinsey & Company and as a member of the management team that restructured the Uniroyal-Goodrich Tire Company.

Q: What research went into “Revival of the Fittest”? (Since Donald is a Harvard guy, I’m attempting to be semi-professional.)

A: Steve, “Revival of the Fittest” is based on extensive global research into successful and failed transformations across many industries. It introduces a three-step action model to prevent managers and leaders from reinforcing old behaviors in face of change.

Q: Why do good companies go bad?

A: Simple. Married to the past. They can’t divorce themselves from what worked in the past, whether it’s a core strategy, a key customer, product, service, or method.

Q: Reluctant to change?

When you’re finished changing, you’re finished.   – Ben Franklin

A: Yes. When the competitive situation changes, they respond to the future by doing more of what worked in the past – I refer to this as “active inertia.”

Q: Active inertia? I want to explore this further in a minute, but first, what was the one single fact that surprised you most during your research for “Revival of The Fittest”?

A: The biggest surprise was the critical role of commitments. I knew of course that commitments mattered, but I thought that economic drivers would be key to understanding.

Q: Commitments … good, glad you brought that up. I have an acquaintance that recently took over a company and is dead-set on articulating 397 commitments to his employees, investors, partners, customers, etc.

A: 397?

Q: Involved in too many commitments?

A: By about 390.

The difference between ‘involvement’ and ‘commitment’ is like an eggs-and-ham breakfast: the chicken was ‘involved’ – the pig was ‘committed.  – Unknown

A: I found it really interesting to see the extent to which managers often found themselves trapped in a web of commitments they themselves had woven.  Commitments, it turns out, not only linked past actions with current constraints, it also linked the person who made the commitments with the organization.  So who committed mattered both in the past and moving the company forward.

Q: What is active inertia?

A: When companies fail, people often assume the problem is paralysis. Managers freeze like the proverbial deer caught in headlights. I’ve found the opposite is true. Most environmental shifts happen gradually, and managers anticipate them and respond quickly and forcefully. Their response, however, is often ineffective. Sometimes the problem is managerial arrogance or insufficient resources. My research, however, suggests another cause.

Stuck in a Rut. Pedal to the Metal.

They respond to disruptive changes by accelerating activities that succeeded in the past. When the world changes, in other words, they respond with more of what worked before. A better analogy is a car stuck in a rut: managers put the pedal to the metal and dig the rut deeper.

Never confuse motion with action. –  Ernest Hemingway

A: Examples of prominent companies that fell prey to the active inertia trap include Laura Ashley, National Westminster Bank, Daewoo, Firestone, and McDonalds. Attempts to break out of active inertia can derail for any number of reasons, including time pressure, lack of resources, or just plain bad luck. But patterns of failure do emerge.Q: Examples? (Does it get any better than a one-word question?)

Q: How can active inertia be overcome?

A: Commitments. Transforming commitments.

Q: Which are? (Note the concise yet complex nature of my question … I’m clearly in line for an honorary degree from Harvard … aren’t I?)

A: Pay to play. To fundamentally overcome and transform a company, you must commit to taking actions that break the status quo. To do this, the price (and pain) of not changing has to be higher than the price of changing.

Q: Boy, that sounds like I wrote it. Can you explain it Harvard style? We have a very sophisticated readership.

A: Okay. For you. You are my favorite Donkey-Shooter.

Q: Really? Does that mean, perhaps, that I can become an …

A: Uh … all our exemptions for the intellectually challenged are used up for the millennium.

Q: But, but, what about the next millennium?

A: I’m sure you’ll be at the top of the list.

Q: Cool!  Anyway, go ahead …

A: Managers must explicitly commit to transforming their organization’s existing success formula through transforming commitments. These are bold actions that remake an organization’s success formula by increasing the cost, or eliminating the possibility of, persisting in the status quo. 

Until one is committed, there is hesitancy, the chance to draw back, always ineffectiveness.  – Goethe

A: Managers might, for example, exit a legacy business, publicly commit to a new goal, or fire powerful executives who oppose the new direction.Q: Bold actions? Give me an example.

Q: Fire powerful executives?

A: Yes, if they backslide into the old status quo pattern or don’t support the new goal.

 Either move or be moved.  – Colin Powell

Q: Companies that have done that?

A: In the book, I describe several successful transformations, including IBM, Nokia, Asahi Breweries, Samsung, and Lloyds-TSB.

Q: Do or die?

Are you in earnest? Seize this very minute! Boldness has genius, power, and magic in it. Only engage, and then the mind grows heated. Begin, and then the work will be completed. – John Anster

A: Yes, but only if it’s right for the company. Sometimes transforming commitments aren’t necessary. Transforming commitments are not a panacea. They can work wonders, but they also have serious side effects.

“It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.”  – Charles Darwin

Q: Not for the fainthearted – or lazy – is it?

A: No. The transformation might destabilize the core business and jeopardize a predictable profit stream. They leave a company particularly vulnerable because they simultaneously set out on a risky new direction while destabilizing the core.  Managers shouldn’t take these actions lightly.

Faint heart never won the fair lady. – Cervantes

A: Don’t make 397 of them.

Q: How can you make sure your transforming commitment is effective?

A: Effective transforming commitments share three characteristics: they are credible, clear, and courageous.

Effective Transforming Commitments are:

Credible. 

Clear.

Courageous.

A: A manager’s commitments are credible to the extent that other people believe they will stay the course even when changes in the business context might promote another course of action in the future. If customers, employees, colleagues, partners, or other stakeholders believe that the manager will be steadfast in honoring their commitment, then they will adjust their own behavior accordingly.Q: Credible?

Q: Sounds like trust to me.  They have to trust their leader. Clear commitments?

A: Yes. Trust. You are right. Clear commitments increase credibility, are easier to communicate internally and externally, and they provide an easy-to-visualize alternative to the status quo.

Q: Simple. Short. Easy to understand?

A: Yes.

“Plain question and plain answer make the shortest road out of most perplexities.” – Mark Twain

A: And finally, transforming commitments are risky business that requires managers to break from the existing formula rather than fortify it. If your company’s survival depends on transforming commitments, then you will require courage.

Only those who will risk going too far can possibly find out how far they can go. – T.S. Eliot

A: And finally, transforming commitments are risky business that requires managers to break from the existing formula rather than fortify it. If your company’s survival depends on transforming commitments, then you will require courage.

Q: Are there certain mistakes that always seem to surface?

A: Yes. In studying transformational efforts, I have observed a small number of common mistakes that managers consistently make. I call them the seven deadly sins of transforming commitments because any one of them can kill a transformation. Most are errors of commission actions that managers should not have taken but did anyway. Others are errors of omission actions that a manager should have taken but failed to.

In the book, I illustrate these common mistakes with examples including Enron, Arthur Andersen, Apple Computer, Bertelsmann Group, Compaq, Kmart, Sunbeam and Vivendi.

Q: How would a great leader begin this process …  take decisive action to fulfill the mission?

A: Transforming an organization is messy and complicated. But at its essence, it’s a three-step process.  But first, let me tell you how not to choose an anchor.

 How Not To Choose an Anchor:

1) It worked last time. 

2) It worked in my last job.

3) It works in theory.

4) It worked for our competition.

 5) It worked for GE. 

Q: Okay. (Sounds vaguely familiar, where have I heard that before?) The first step?                      

A: In the first step, a leader selects an anchor. The anchor is what the manager commits to, a new strategic frame, process improvement, renewing the company’s resource base, stretching relationships with external parties, or novel values. Different anchors have advantages and limitations as levers to pull an organization out of active inertia. Anchors provide an overarching objective to prioritize actions. They help managers avoid trying to change everything all at once.

Select an Anchor:

What Are You Committing to?

A: In the second step, a manager secures the anchor with transforming commitment actions such as exiting a business, public promises, or personnel decisions that prevent a company from falling back into the status quo.

Be Bold.

Take Decisive Action.  Secure the Anchor. 

Q: So, if one had the opportunity to choose a business model in the typewriter market or a forensic DNA testing service, one would choose an anchor between those two?

A: Yes.

Q: And the choice would be?

A: Doesn’t take a London School of Business professor to answer that. Perhaps you should read “All I Really Need to Know I Learned in Kindergarten” by Robert Fulgum.

Q: Thanks, I don’t typically delve into theoretical intellectual treatises. But I appreciate your suggestion.  Next?

A: In the final step, the manager realigns the organization’s remaining frames, resources, processes, relationships and values. The leader’s transforming commitments will create tension with elements of the existing success formula and employees can easily slip into the status quo. In this third step, the leader must struggle against backsliding as he brings the success formula into a new alignment.

Realign your business to support your success formula and …  lookout for backsliding backsliders.

Without a struggle, there can be no progress.  – Frederick Douglass

 Q: What type leaders (attributes/personality traits) have the most success at leading change and successfully executing transforming commitments?

A: The best candidates share a few characteristics: they are familiar with the company’s business without being trapped in the existing success formula. Their personal values and professional backgrounds are consistent with the anchor chosen and the commitments made. And they don’t try to do it all themselves.

Know the business. But not too well.

Don’t get trapped in the past.

Don’t do it all yourself.

 A: They surround themselves with a strong and diverse team. And they have the necessary support, tenure, and incentives to succeed in this leadership role. If these criteria don’t fit, then it’s dangerous to undertake the transformation.

Surround yourself with a strong and diverse team.

Support and incentivize them.

Q: Any final thoughts?

A: Transforming the status quo demands a personal commitment that feels very different from business as usual. Making bold commitments requires managers to stick their necks out and they have to decide whether they are the right person to do that.

Boldness in business is the first, second, and third thing. –  H.G. Bohn

A: They have choices; committing isn’t the only option. They can sit and wait it out or they can quit and do nothing. The last chapter gives people the license to say, “I’m not ready for this.”  It will help managers think about not only what needs to be done, but also whether they are the right person for the job.

Accept the challenges, so you may feel the exhilaration of victory.  – General George S. Patton

THE END

P.S. Cal, read the last chapter of “Revival of the Fittest.” Please!!!

Great things are not done by impulse, but by a series of small things brought together. – Van Gogh

 ###

---

Donald N. Sull

Dr. Donald Sull is a Professor of Management Practice in Strategy and Entrepreneurship at the London Business School.

Sull is a global authority on managing in turbulent markets. He has been identified as a leading management thinker by The Economist, the Financial Times, and Fortune which named him among the ten new management gurus to know. The Economist listed his theory of active inertia among the ideas that shaped business management over the past century.

Steve Kayser, when not training for the kilt-wearing mechanical bull riding Olympics to be held in Cincinnati, in 2050, trains aspiring writers in the fine art of “Power Interviewing – Practical Tips and Techniques for Questioning Your Way into an Honorary Harvard Scholar Degree.” In addition, Steve is an entrepreneur who lives to  inspire and motivate others by fulfilling a famous Mark Twain axiom,

 “Let us be thankful for the fools; but for them the rest of us could not succeed.”

Steve Kayser’s Business Bio (and here’s Steve’s “Real Bio.”

 *** This interview was first published in, are your ready for this? 2002. Good content from good thinkers (and I’m not including myself) is evergreen, to use a web search metaphor.