By Anders Drejer & Christer Windeloew-Lidzélius

In 1905, the average life expectancy of a company was 70 years. A century later, that number was 20. Conclusion: apparently, more and more companies fail and become extinct.

Why do companies fail? Is it inevitable, caused by disruptive changes in the organisation’s environment or managerial sloppiness? Or can it be avoided? In the article “Why do we fail[1]” f this article, we reviewed what we know about how companies and their managers – that would be you – manage to fail and end up in the great graveyard of failed companies. Now we are pretty sure that you would like know how failure can be avoided. By you. Yes?

Prelude – The First Friendly Reminder

We are sorry to say this, but in the 1950s and 1960s being a top manager was perceived as a piece of cake – at least in the Western world. The rapid growth of the so-called “Roaring 50s” and no less interesting 60s made management into the art of analysis and planning for the expected and predictable growth of the years to follow.

Note: only in Japan did the situation after the Second World War force Japanese managers and governments into some real innovation in terms of leadership, lean production and new products and ideas. We salute them for this, but the effects on the dominant thinking about leadership took decades to break through.

So, in 1970, the top manager was still the Rational Economic Man who, having all the necessary information and knowledge, made calculated and optimal decisions at every point. And organisations were largely seen as closed systems to be structured and governed by rational analysis and top-down management. Some, like famous systems thinker Russel Ackoff, did suggest that organisations be seen as open systems with an interaction with their environment. They were largely ignored.

Enter the winter of 1973/1974. Within no time lobal oil prices had gone up by 400%, an event entirely unforeseen by anyone, including politicians, analysts, managers and researchers. The effect was, in a word, grand. Governments scrambled to find solutions to the crisis, top managers panicked and much of the actions and behaviours seems to correspond well with Active Inertia Model we described in a previous article[2] and the research community recognised that strategy is not a matter of planning but a matter of leadership.

Intermission – The Recognition

A famous book, entitled From Strategic Planning to Strategic Management, authored by H. Igor Ansoff and Robert Hayes, paved the way for the change in thinking about your work as manager as consisting of taking care of daily operations (what we today label “Management”) and creating the future of your organisation (what we today label “Leadership”).

Much helped by Royal Dutch Shell’s studies of how organisations last over 50 years, being market-leaders and surviving at least one major crisis which resulted in the creation of scenario technique, the recognition that organisations are creatures deeply dependent of their environment and its changes was made.

The following revolution in our research, thinking and practice of management was along the same lines as the late Donald Schön’s view: “if there is more change outside of the Board Room than inside, then the organisation will eventually fail”. Change cannot be underestimated on any account, but it should probably also be attributed to management.

Conclusion – How to avoid failure

So, there you have it. Our two cents on how to avoid failure:

  • Most theories and models of organisations and leadership are inspired by machines, an understandable metaphor, given the mighty industrial age. However, a better metaphor would be to view them as living entities[3] interacting with their environment and learning from it. Note: Arie De Geus, one of the inventors of the Scenario technique, called his account of the studies mentioned above “The Living Company”.
  • Because of the first advice, you – as a top manager – should take on the task of being the one in the organisation who learns the most, who innovates the most. Do not drown yourself in routine work that you can make others do; instead, have the outlook and visions for the future. Note: it is a Kaizen principle that first-line managers should focus 80% on management and 20% on leadership, whereas top managers should devote 80% of their efforts to leadership/innovation and 20% to routine.
  • Innovation takes time. You need to devote time to reflection, ideas and learning. Time that is much better spent here than on control, endless meetings and checking numbers. Note: numbers reflect the past – like driving a car while only looking in the rear-view mirror. Where do you view the future of your company? The road ahead?
  • Be imaginative. If the future cannot be predicted, why not create it? This requires you to use the alternative methods of strategic design, business creation and emergent strategy. Note: these methods are not new; they are well tested, and they work.

There are many other ways as well. Often more than one approach to strategy is needed, but what would be your guiding stars in staying on track, watching out for changes and growing with the need?



[3] Note. There are other possibilities as well. For instance, as social constructions, or perhaps complex adaptive systems and so forth. There are however many overlaps in these approaches.

Kaospilot Publishing launches a journal aimed at disseminating research, ideas and opinions about innovation and related fields. This piece is out is by Anders Drejer and Christer Windeløv-Lidzélius. It speaks to the fundamental need of renewal and development.

Also available through Spiro School of Business -The Innovation Series

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