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Strategy

Warning: Success is a Huge Business Vulnerability

Former Microsoft Chief Operating Officer Bob Herbold says success creates nine dangerous traps for companies around the world today.

Many companies “think they have found the secret that will lead to everlasting success. Little do they know that by turning their previously successful practices into legacy practices that they follow continually, they’re putting themselves in a very disadvantageous position,” Herbold says.

In his new book “Seduced by Success; How the Best Companies Survive the 9 Traps of Winning,” Herbold thoroughly examines 44 companies from around the world to illustrate the traps.

'You have to constantly move, evolve, improve and innovate'

He cites Eastman Kodak Co, which was so tied to the film and photo printing business that it missed the digital camera revolution, and more recently Dell Inc, which ruled the PC business for years, but underestimated competition from new and revitalized rivals.

“It’s driven by the lack of urgency.  The thinking is that because we’re successful, what’s the problem? We’re proud of what we do. That kind of thinking leads to the various traps,” he said. “You have to continually move, evolve, improve and innovate on an ongoing basis.”

To illustrate his thesis, Herbold cites the two biggest automakers, General Motors Corp and Toyota Motor Corp. He points out that their global market shares have gone in opposite directions over the past 30 years.

“There’s one fundamental difference and that is that the folks at Toyota are very, very paranoid about the future and constantly asking the question of how they can improve,” Herbold says. To underscore his point, recent data show that in the first quarter of 2007, Toyota passed General Motors as the biggest auto company in the world.

Herbold contrasts consumer electronics companies Sony Corp and Samsung Electronics.  He says Sony should have blossomed in the past 10 years and should have invented the iPod.  It had all the components of success going into the digital/internet/MP3 age after it dominated the portable music market with the “Walkman” tape and CD player.

Beware of silos

Sony had software skills, deep consumer electronics expertise, and an entire music division under its umbrella.  It should have been a leader in the MP3 market, but different parts of the company didn’t communicate, he says.  Each of those skill areas was in a separate silo designed to succeed as a stand-alone business.

“They had all the capabilities, but the organizational structure was such that those silos could never work together,” he says.

Samsung was structured very differently. It started by emulating Sony, but the company also created a unit it calls the “value improvement programme” which is designed to bring together all the resources of the company to capitalise quickly on innovations.

“They’re totally focused on improvement, improvement, improvement,” he says. “The idea is to generate new innovations that can very quickly get into the marketplace. Their value improvement programme represents a very effective way to get the jump on a brand new category.”

In his seven years as COO of Microsoft, Herbold watched a small, innovative competitor thrive, then shrivel and then reinvent itself and thrive again. That company is Apple Inc.

'If you think you've got it all figured out, watch out'

“The important lesson from Apple is that you’re never done. Just as soon as you have it all figured out, or that you think you have it all figured out, watch out. Because there’s some bright idea out there that’s going to take your business away and that’s the mentality that you have to keep,” he says. “It’s all about continually getting yourself ahead of the marketplace.”

In our rapidly changing world, where people are always looking for the next big thing, Herbold warns that your branding can become boring and your products can become inferior to competition. Also, companies need to do a much better job of communicating to employees their plan for progress.

IBM Corp, for example, had lost its way in the early 1990s, in part because executives constantly speculated about future directions in the press, but never adopted a firm plan, and employees were totally confused. When Lou Gerstner arrived on the scene as chief executive, he immediately got the company focused on one key mission and communicated it clearly to managers and employees.

Too often companies rely on “trickle-down” communications, with middle managers relaying their own take on corporate goals. Executives at the highest levels need to be asking: “What’s the best way for us to communicate to the employees so that it is absolutely clear to all employees what the objective is?” says Herbold.

Does your company's business model make it vulnerable?

Managers need to ask themselves other key questions too. Herbold says they need to know whether their business model makes the company vulnerable.

He stresses that you need to be constantly asking “What new and exciting things are we doing? How can we improve over the next 3-6 months? What are the bright ideas to make this place run better?” he says.

Herbold spent 26 years at Procter & Gamble Co before joining Microsoft.  He says P&G has some terrific practices in place that continuously seek out and find unmet consumer needs and those practices have sustained their growth. “P&G has always been focused on satisfying consumers and that focus has enabled them to avoid the problems of pride and loss of sense of urgency.”

He believes Microsoft faces challenges as the world moves towards software as a service delivered online, but he says the company has constantly adapted and changed over time as technology has evolved.

The goal, he says, is for managers to “keep their eyes wide open for the success-induced traps, and be willing to acknowledge that you’re never done. You have to constantly tackle the future.”