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The case of how shared workspace company WeWork went from being a darling of American business to bankruptcy is one example in a long line of corporate failures that stem from top management’s failure to adapt to a major change in world.
Many don’t see the iceberg in front of them, but some can change course
The RMS Titanic sank in 1912 because everyone thought it was unsinkable. Human arrogance and pride are a flaw we all have. Even C-level executives believe this, despite their opinions to the contrary, and old practices that have worked well in the past are difficult to change.
Let’s take Nokia for example, a giant in the analogue cell phone sector. When Apple launched its iPhone and Google launched the Android operating system, the Finnish giant, which had previously moved from the radio sector of the logging industry to mobile phones, decided to distinguish itself with its proprietary Symbian operating system. The market didn’t agree, and soon after Nokia lost its leadership in the industry along with players like Sony Ericsson and Motorola to newer phone makers like Samsung and Apple.
When Netflix was a small startup, it offered itself for sale for $50 million to Blockbuster, which rejected Netflix’s DVD movie shipping business. During that time, Blockbuster was the giant in the VHS/DVD movie rental industry, with a presence of retail stores on many street corners. Unfortunately for them, they failed to recognize the changes that had occurred, namely that video streaming technology had become cheap. Netflix, on the other hand, was humble enough to recognize the change and is now one of the biggest giants on the NASDAQ.
Related: How Pivoting Saved My Business When Things Didn’t Go According to Plan
Often those with exceptional educational backgrounds fail to recognize these changes, especially if success is all they have encountered with the status quo. After all, it’s hard to ask yourself why you’re successful. Most people will simply take this for granted and, in some cases, decide that their special management skills are what led to their success.
On the bright side, an example of a major strategic shift executed successfully was when Intel, under the leadership of late CEO Andrew Grove, with cofounders Robert Noyce and Gordon Moore, led the transition of its business from memory chips to new microprocessor business in the 1970s. It’s easy to make this change as a company if your current company is losing money, but it’s harder if it’s making tons of money. In Intel’s case, they decided that if new management came in, they would move into microprocessors because of the upcoming personal computer (PC) business with IBM and others, so they decided to do it themselves instead.
Grove pointed out in his bestselling book on management, Only the paranoid survive, that every company and every industry could face what are called strategic inflection points in the future. These are key moments when management should recognize that something important has changed, and if a company is unable to turn around, it could face decline or even extinction.
How should we then act?
The number of eventual corporate failures that have graced the covers of major business magazines proves that arrogance is everywhere. A true business leader, to be successful throughout his career with the company, should also show a certain humility.
What’s worse is that we often try to defend our positions and use confirmation bias, even if the data supporting our argument is random to begin with. This means that the data, even if it appears to support your position, doesn’t.
The first step we must take is to admit that as human leaders we are not infallible. Each of us can make mistakes. Appearing on the cover of a business magazine and being invited to speak at prestigious global forums like in Davos, Switzerland, or sitting in the C-Suite does not make us less human.
Next, learn some statistics, such as how to use an XY scatter plot. At least enough to know that you need enough data to show a real related trend. Learn not to infer a trend from a random set of data that doesn’t even show a line or curve when graphed. Just because you got heads on three coin flips doesn’t mean the next flip will have the same result as before.
The life of a turkey before the ax falls on its head is quite beautiful. The turkey is well fed and treated delicately. In short, past performance is not an indicator of future performance.
If your data already shows a trend, don’t suffer from analysis paralysis just because you’re unable to shift gears. If it’s time to change course, just do it. Discuss with your team what to do if you screw up and actually make that change in direction. Have a pre-agreed exit strategy from the position you first took, no matter how hardcore you were. If something has changed, be ready to change direction.
Related: Knowing when and how to pivot is key to your company’s survival. Here’s what you need to do.
Don’t become extinct
Having the ability to spot when something has changed and the willingness to abandon past success that may no longer hold true for a new, uncharted course is part of good business leadership.
It’s not risk-free, but it’s necessary. If your company masters this skill, it can extend your business for the next decades, otherwise you will become just like dodos and dinosaurs.