It will come as a shock to many to learn that the iconic consumer electronics brand, Sharp, could only have a year to live – that’s the news reported in the Financial Times today. Sharp isn’t alone. Other icons are suffering erosion too including including Panasonic.
For many of us, we think of the failure of household names as very much a Western phenomenon. Names like Kodak, GM, Polaroid, Ford all spring to mind as organizations that were once indomitable but now have either faded away or are struggling to rejuvenate. For those of us who went to business schools in the 1980s and 1990s, Japanese management was something to envy and learn from. Surely it was only Western organizations that fell victim to the ossification of old age?
Not true I am afraid. This takes me to the heart of this post.
There is one tool or approach that is available to business leaders that is grossly under-utilized. It relates to a very well researched phenomenon but it receives far less publicity than ‘solutions’ such as Six Sigma or the Balanced Scorecard. It’s called the ‘organizational life-cycle‘. There is a considerable amount of research that tells us that organizations are like people – they go through defined stages – birth, growth, maturity, decline and finally death. Just like the human body, these phases exhibit clearly defined symptoms – so the progression can be monitored and proactive corrective action taken. There is only one difference between human beings and organizations – the latter don’t have to die.
But too many do.
Now, a question for you. What proportion of organizations make it to the age of 40? Is the answer:
(For the correct answer – please scroll to the bottom of this post)
The organizational life cycle is the most valuable tool that you may have never used. The real problems start to emerge when the organization reaches maturity. Growth slows. The focus on innovation fades. The emphasis is upon internal control. These are all seeds that generate an increasingly inwards-looking focus that eventually, and silently, lead to decline and death. Left too long and maturity is very difficult to reverse. Success rates in maturity turnaround operations are around 30% and there is always the very great danger that large organizations after a successful turnaround effort can quickly backslide into maturity. But maturity, or ignorance of maturity, is a very real danger. To illustrate this point, we can look at US Fortune 100 companies. Over the period 1955 to 2006 over 86% suffered a maturity crisis. More sobering, of those that survived the maturity crisis, fewer than 46% were able to return to moderate or high levels of growth within 10 years of that crisis.
The situation that Lou Gerstner found when he took over leadership of IBM in 1999 is typical of the symptoms of mature organisations that are on the slippery slope to death:
- Management reward systems that encourage short-term financial gains, not long-term vision.
- A penalty for mistakes. Managers were expected to implement new projects flawlessly. Naturally they would avoid risk.
- A preoccupation with existing markets and current products.
- A financial driven measurement and assessment approach that wasn’t supportive of experimentation. All new ideas were expected to financially break even after one – two years.
- No entrepreneurial skills.
- No processes for innovation. Formalised, big organization processes were used to manage small innovation projects.
Failure to recognise and manage the symptoms of maturity can bring with it a very big cost, not just in financial terms, but more importantly, in human terms. At its peak, Kodak employed 145,000. Now it employs some 17,000. GM at its peak employed 877,000, now it employs 266,000.
Are you using the best kept secret of management?
If you’re really interested in the area of using the life cycle to ensure the longevity of your organization, please check out my program here.
Q: What proportion of organizations make it to the age of 40? A: None of the above – 0.1%