clair015

We know companies can grow too fast; it gets out of hand, they lose control and, eventually, the whole thing comes tumbling down. My favourite examples are still the ancient case of People Express in the 1980s (one of the first, and initially most successful low-cost airlines ever) and, a few years ago, Dutch retailer Ahold. However, companies can also try too hard to grow. Hence, it is not that there’s too much growth; there’s no growth at all and that’s precisely because they are trying to hard! Let me explain. Pretty much everyone attempts to grow. And when we look at different “strategies for growth” – that is, where can growth come from – we usually get presented a list of options: You can diversify, innovate, add new products to your portfolio; partnerships can help you grow, etc. Do these well, and the resulting factor will be growth. However, what we are often inclined to overlook is that growth in and of itself is simply a lot of work. That is, even when just doing more of the...

Do you know why we so often remunerate CEOs through stock options? Because we do; that 40-50 percent of a CEO’s pay consists of stock options is nothing unusual. Of course it is to tie a CEO’s pay more closely to the performance of the firm s/he is heading. Inherent in the design of CEO pay packages is the assumption – driven by what is known as “agency theory” – that if you simply put them on a fixed salary, they will be lazy, won’t take any risks and certainly won’t do a thing that will only show up in the company’s results years from now (and hence only benefit their successor). No, these CEO types really need some pay incentives closely tied to the long-term performance of their firms.* So, we use stock options to tie their rewards to the long-term performance of the firm. However, that could also be done through other means (e.g. shares), right? Correct; we specifically use options to also make these CEO buggers more risk-seeking . Say what?! (you might think) More risk-seeking? ...

Here's a hypothesis: In prosperous times, companies often fall victim to not being able to resist the many opportunities for growth that present themselves to them. In isolation, many initiatives with respect to new products, new markets or new customers look good but when pursued in combination they have a negative effect and hamper growth. Yet, wealthy firms find all these options difficult to resist precisely because in isolation they look so good. They have the funds to spare and therefore they are inclined to do too much of a good thing. Andrew Grove, former CEO of Intel, understood this well. Their best-selling product – microprocessors – had endowed them with much cash to spare. However, he resisted temptations to spend it on other initiatives and entering adjacent businesses, telling his people “this is all a distraction; focus on job 1 [microprocessors]”. It made them one of the most successful companies ever. In a down-turn, companies should look different However, compan...

The illustrious former chairman of IBM, Thomas Watson, once said “Whenever an individual or a business decides that success has been attained, progress stops”. What he was speaking about was that successful firms find it very hard to change, for instance in response to changes in their business environment. (Unfortunately he is also the person who allegedly said “I think there is a world market for maybe five computers” so I would say “physician heal thyself”… but I guess that doesn’t make him wrong about the first bit!) This rigidity-due-to-success effect is partly a mental thing. Once something has brought us much success for a sustained period of time, we sort of forget that there are other ways of doing things. It may even be so bad that we don’t spot the changes in our business environment at all anymore. However, let’s not make the mistake to think that such strong mental models of how we go about doing our business are all bad. They also bring some pretty strong advantages. Cons...

One of the first series of strategy-making meetings I ever attended was in a large newspaper company. I was basically a fly on the wall, watching the process unfold with the mixture of curiosity, puzzlement and amazement, like a Martian watching a cricket game (or so I imagine). It quickly struck me that there seemed to be a number of pre-formed sub-groups, with their own opinion and agenda. You had the people who wanted to take the company public, those who thought they should diversify into other areas of business, those who thought they should become a “green company”, and so on, and those who thought they shouldn’t care out of a matter of principle. Of course there were some political motives at play but mostly these people seemed genuinely convinced that their opinion was what was best for the future of the company. And, rather than coming up with new ideas, the strategy meetings seemed to consist of the various people trying to convince each other of their view of the company, it...

Some time ago I was having lunch with three McKinsey consultants and they started talking about how different all the people in their organisation were. I was watching them during this conversation and couldn’t help but notice that they even looked alike... They spoke alike, dressed alike and, clearly, thought alike. What seem like huge differences within a group may be miniscule (or even non-existent) if you’re an outsider looking in. It actually reminded me of a scene in Monty Python’s “Life of Brian”, in which Brian looks out of his window and sees this huge crowd gathered in front of his house waiting for him to speak. And he shouts “you are all different!” After which they dutifully reply in chorus “ yes, we are all different ”. [Brian] “You are all individuals!” [Chorus] “Yes! We are all individuals!” (I particularly like the guy who subsequently says “I’m not”...) Anyway, McKinsey, like many highly successful individuals and organisations – my great colleague Professor Dominic H...

“Tunnel vision is caused by an optic fungus that multiplies when the brain is less energetic than the ego. It is complicated by exposure to politics. When a good idea is run through the filters and compressors of ordinary tunnel vision, it not only comes out reduced in scale and value but in its new dogmatic configuration produces effects the opposite of those for which it originally was intended.” Tom Robbins, in “Still Life with Woodpecker”. We know, from running statistics on the performance of companies over time, that especially very successful firms have trouble staying successful, and adapt to changing industry conditions. We call this the “ success trap ”, “competency traps” or the “ Icarus paradox ” in business. But where does it come from? What is causing it? There are various parts to the explanation but one of them pertains to how the top managers of those very successful companies perceive the changes in their business environment. Research by professors Allen Amason from...