What Really Kills Great Companies: Inertia

  • September 29, 2009, Gary Hamel, WSJ
  • In most  organizations, change comes in only two flavors:  trivial and traumatic.  Review the history of the average organization and you’ll discover long periods of incremental fiddling  punctuated by occasional bouts of frantic, crisis-driven change.  The dynamic is not unlike that of  arteriosclerosis:  after years of  relative inactivity, the slow accretion of arterial plaque is suddenly  revealed by the business equivalent of a myocardial infarction. The only  option at that juncture is a quadruple bypass:  excise the leadership team, slash head  count, dump “non-core” assets and overhaul the balance sheet.

    Why does  change have to happen this way?   Why does a company have to frustrate its shareholders, infuriate its  customers and squander much of its legacy before it can reinvent itself?   It’s easy to blame leaders  who’ve fallen prey to denial and nostalgia, but the problem goes deeper than  that.  Organizations by their very  nature are inertial.  Like a  fast-spinning gyroscope that can’t be easily unbalanced, successful  organizations spin around the axis of unshakeable beliefs and well-rehearsed  routines—and it typically takes a dramatic outside force to destabilize the  self-reinforcing system of policies and practices.

    Let me  return, for a moment, to the topic of my last post, organized religion.   What are some of the inertial forces that have prevented churches from  reinventing themselves in ways that might make them more relevant to a  post-modern world?  A partial list  would include:

    –Long-serving denominational leaders  who have little experience with non-traditional models of worship and  outreach.

    –A matrix of top-down policies that  limits the scope for local experimentation.

    –Training programs (seminaries) that  perpetuate a traditional view of religious observance and ministerial  roles.

    –Promotion criteria for church pastors  that reward conformance to traditional practices.

    –And a straightjacket of implicit  beliefs around how you “do church.”   For example:

    Church  happens in church.

    Preaching is the most effective way of imparting religious  wisdom.

    Pastors lead in church while parishioners remain (mostly)  passive.

    The  church service follows a strict template:  greet, sing, read, pray, preach,  bless, dismiss (repeat weekly).

    Believers, rather than curious skeptics, are the church’s primary  constituency.

    Going  to church is the primary manifestation of a spiritual life.

    Church  is a lecture not a discussion.

    If organized  religion has become less relevant, it’s not because churches have held fast to  their creedal beliefs—it’s because they’ve held fast to their conventional  structures, programs, roles and routines.  The problem with organized religion  isn’t religion, but organization.    In the first and second centuries, the Christian church was communal,  organic and unstructured—a lot like the Web is today.  It commanded little power (it couldn’t  raise an army or depose a monarch), but had enormous influence.  (The Christian church grew from a handful of believers in AD 40 to 31 million adherents by AD 350, roughly half the population of the Roman empire. ) Today many mainline denominations  are institutionally powerful, but spiritually moribund—at least in the  U.S.

    What’s true  for churches is true for other institutions:  the older and more organized they get,  the less adaptable they become.   That’s why the most resilient things in our world—biological life,  stock markets, the Internet—are loosely organized.  

    To thrive in  turbulent times, organizations must become a bit more disorganized—less buttoned down, less  uptight, less compulsive, less anal.

    As a start,  you’ll need to become more alert to the things that reflexively favor the  status quo in your own organization.   While no one’s going to stand up  and say, “I’m on the side of inertia,” they may nevertheless defend management  processes that reflexively favor the status quo.

    All of the  things that allow little organizations to grow into big ones—scale, learning  effects, and accumulated expertise—are products of repetition.  When the environment changes, however,  the returns to repetition start to diminish.  Problem is, old habits die hard,  particularly when they’ve been hardwired into a company’s management  processes.  

    –Hiring criteria that over-value  “expertise” and under-value diverse life experiences.

    –A planning process that  institutionalizes orthodox thinking by using industry standard definitions of  customer segments and product categories

    –Decision-making bodies that are  comprised mostly of long-serving industry veterans who tend to discount new  views.

    –Highly conservative budgeting criteria  that starve unconventional projects of resources by demanding near certain  returns, even when the funds involved are modest.

    –A single approval track for new  projects, where every new idea has to go up the chain of command.

    –Large, monolithic organizational units built around a single, dominant, business model.

    –A highly optimized but inflexible IT  infrastructure.

    Large  organizations don’t worship shareholders or customers, they worship the  past.  If it were otherwise, it  wouldn’t take a crisis to set a company on a new path.

    The most  extreme version of organizational inertia comes when those within a company  are no longer able to distinguish between form and function—when their  instinctual loyalty is to the “how” rather than the “what.”

    If one  didn’t know better, it would be easy to believe that a lot of newspaper  publishers have been more committed to producing broadsheets than to  delivering the news in a convenient form, or making it easy for advertisers to  connect with customers.

    Until  recently, music companies seem to have been more committed to stamping out  plastic discs than to giving their customers easy access to their favorite  tunes.

    Many drug  companies seem a lot more interested in peddling temporary palliatives for  chronic conditions than in eradicating disease.

    For years,  Kodak seemed more focused on making film than on leveraging new digital  technologies that would make photography simpler and cheaper.

    Alzheimer’s,  arteriosclerosis and arthritis—these seem to be the inevitable byproducts of  old age.  But must organizational  maturity bring a similar set of maladies?  I don’t think so.  Despite all the evidence to the  contrary, I think a company can truly be “Forever 21.”

    In my next  couple of postings I’ll give you the Cliff Notes version of the book I’m too  busy to write:  ”Ever Young:  How to Keep Your Company Flexible,  Vital and Impertinent.”

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