Why Good Companies Go Bad

Article Review

Misti Walker

1
 Why Good Companies Go Bad
By Donald Sull

In the article, Why Good Companies Go Bad, Donald Sull explains the

phenomenon that occurs when successful companies encounter change and are unable

to transition the company effectively; Sull posits that active inertia is to blame. Active

inertia is what occurs when a company resists change, unable to let go of the ways of

the past. Successful companies are more prone to this because past policies and

practices have contributed to their success. When these companies fail to adapt to

market changes, it is not due to paralysis as widely believed. Rather, these companies

are often aware of shifts in the marketplace well ahead of time. What then, causes

good companies to go bad?

Four things happen to companies experiencing active inertia. First, strategic

frames become blinders. That is, managers in successful firms have proven strategies

and consequently view all information through their proven strategic frames. This

undoubtedly allows managers to work more efficiently by allowing them to quickly

determine what needs attention. However, by relying on the strategic frames of the

past, managers are unable to see developing trends or opportunities. In essence, the

frames become blinders.

Second, companies experiencing active inertia have processes that have

hardened into routines. When employees are first presented with a task or goal, they

will try several different ways of doing that task until they determine which is the most

efficient. Upon determining the most efficient method, employees will adopt that

methodology for the future. However, as the marketplace, workforce, or the company

2
goes through changes, old processes may no longer work. If these processes have

become routines, it will be nearly impossible for the employee to recognize more viable

alternatives.

Third, relationships become shackles to companies with active inertia.

Management must maintain relationships with buyers, suppliers, resellers, employees

and the like. However, to avoid active inertia, management must be aware of the

conflicting needs of these groups, yet always put the company’s interests first. An

example of this occurrence is when a company is not interested in selling its product

directly to consumers, for fear of upsetting the relationship with its resellers. This is

exactly what happened at IBM even though consumers were demanding to buy PCs

from the manufacturer, as evidenced by Dell’s success. Coincidentally, IBM no longer

competes in the PC market. Once again, what worked yesterday may or may not work

tomorrow. It is management’s responsibility to periodically review old relationships and

processes to determine if they are still working for the company.

Fourth, companies with active inertia have values that have slowly hardened into

dogmas. A company’s values are a set of deeply held views that unify and inspire

employees. Strategy is where the company is going and its values are the path used to

get there. Values can be a great asset to a firm, if they are still pertinent and effective.

As companies grow, values that have the ability to inspire are replaced with rigid rules

and procedures that are only in effect because that is the way things have always been

done.

In short, in an ever-changing environment, businesses must constantly examine

their values, strategy, relationships and processes to ensure that all are still pertinent

3
and effective in guiding the company into the future. In 2003, Sam Palmisano, CEO of

IBM, arranged an online jam session to discuss company values. The company values

had not been changed since the company’s inception. The chat ran for 72 hours and

all 320,000 employees were invited to participate. From the online session, IBM

adopted three core values.

• Dedication to every client's success

• Innovation that matters, for our company and for the world

• Trust and personal responsibility in all relationships

(http://www.ibm.com/ibm/values/us/)

It is no wonder then, that IBM has been around for over 100 years and has

continuously adapted its offerings to meet the business needs of the day.

I enjoyed this article. It was an easy read aside from the weird, French military

reference. For some reason, the content was harder for me to communicate than the

other articles.