Share
FacebookFacebook icon TwitterTwitter icon LinkedInLinkedIn icon Email
Do you share the mindset

Brain circuits

Do you share the mindset of organizations that know how to survive?

Published 16 February 2022 in Brain circuits • 3 min read

Back in 1994, Gary Hamel in his HBR article, Strategy as a Revolution, stated: “Never has the world been more hospitable to industry revolutionaries and more hostile to industry incumbents.” Almost three decades later, this statement rings true even more. The 33-year average tenure of companies on the S&P 500 in 1964 narrowed to 24 years by 2016 and is forecast to shrink to just 12 years by 2027. It doesn’t take much to think of industry giants that suffered untimely bankruptcies or exist today as a mere shadow of their former selves (Kodak, Blockbuster, PanAm, Borders, Toys “R” Us…).

We studied companies that have enjoyed longevity of more than 50 years to understand what they do differently. Those that experience healthy long lives demonstrate what we call strategic incumbency. This involves two processes:

  1. Shifting from passive to active enactment of incumbency
  2. Leveraging unfair advantages of incumbency (e.g. scale, trust, long-term orientation)

Focusing on the first process, here is an exercise to test whether your organization has become too passive. Look at each of the following passivity traps and ask if your organization is ensnared in them:

  • Complacency: Are you holding on to the world of “knowns” – known customers, competitors, and business models?
  • Locked in by sunk costs: Is a myopic focus on securing return on existing assets allowing the company’s “sacred cows” to perpetuate?
  • Initiative inertia: Are you guilty of taking a reactive approach to challenges/opportunities and adding on new initiatives, without stopping those that clearly don’t work?
  • Short-termism: Is efficiency and cost focus skewing you towards incremental efforts and short-term thinking (in terms of KPIs, incentive systems, promotion criteria, etc.)?
  • Control mindset: Are you afraid to share your best ideas with partners for fear of losing control?

If you recognize that your organization is falling into one or more of these traps, you are in danger of becoming a passive incumbent. Passive incumbents tend to be the “guardians of the past”, favoring the status quo and fighting market share battles within traditional industry boundaries. You need to rethink your legacy business models, be willing to step out of your comfort zone, discuss the “undiscussables”, and get ready to experiment to address the changing needs of your customers.

What you need to do first, however, is to change your mindset and attitude to that of an active incumbent. The following table shows how you can start to make the shift:

 

Passive incumbent assumptions

Active incumbent attitude

We know our customers and provide them with exactly what they want

Customer needs, expectations, and demands are changing every day

We know our competitors; they are trying to steal market share from us

New, competitive threats are appearing from non-traditional players

Our business model is right; we just need to make it more efficient

New players with radically different business models are gaining success

We can compete in new markets with our old model

“One-size-fits-all” model no longer works

Our name/brand will protect us

Rise of insurgent brands and falling brand loyalty is a reality

We have time

Unprecedented pace of change, time is a luxury

 

In the next discussion, we will look at whether your company is suffering from inertia.

 

 

Further reading: 

The Strategic Advantage of Incumbency by Thomas Malnight and Ivy Buche

Authors

Thomas W. Malnight

Professor of Strategy and General Management and Faculty Director of the Business Transformation Initiative (BTI)

Thomas W Malnight is Professor of Strategy and General Management and Faculty Director of the Business Transformation Initiative (BTI) at IMD. His fields of interest are strategy, leading and accelerating transformational organizational change and the role of purpose in redefining businesses and their impact on society.

Ivy Buche

Ivy Buche

Associate Director, Business Transformation Initiative

Ivy Buche is Associate Director of Business Transformation Initiative at IMD. She works with faculty on organization transformation projects for large companies.

Related

Learn Brain Circuits

Join us for daily exercises focusing on issues from team building to developing an actionable sustainability plan to personal development. Go on - they only take five minutes.
 
Read more 

Explore Leadership

What makes a great leader? Do you need charisma? How do you inspire your team? Our experts offer actionable insights through first-person narratives, behind-the-scenes interviews and The Help Desk.
 
Read more

Join Membership

Log in here to join in the conversation with the I by IMD community. Your subscription grants you access to the quarterly magazine plus daily articles, videos, podcasts and learning exercises.
 
Sign up

You have 4 of 5 articles left to read.