Are companies falling into the ‘success trap’?
Too many companies stick to a rigid business model while struggling to maintain a healthy balance between exploration and exploitation
Why is it that so many businesses fail and so few succeed?
Often, many companies fall into the all-too-familiar ’success trap’ - sticking to what they are good at rather than exploring new ideas, said Bettina Büchel, Professor of Strategy and Organization at IMD, at Orchestrating Winning Performance in Dubai.
Take, for instance, Kodak. Why did Kodak fail to navigate digital disruption despite actively planning for it?
For Büchel, the answer was simple. The company did not change its business model quickly enough and relied on past success - a trend which breeds complacency.
"For many companies, often if they are good at something, they tend to do more of the same,” explained Büchel.
Far from the curve
Another challenge is finding fresh ideas. Take Colgate; one of the top-selling brands of toothpaste. In 1982, Colgate launched Kitchen Entrees, a line of frozen food products, in an attempt to capture the growing market for ready-to-eat meals.
It was far off the curve from what they were good at, and the product failed spectacularly.
Many companies face a huge challenge – how to maintain business efficiency, productivity and disciplines as well as generating innovation and growth.
Companies need to find the right balance between exploitation (generating cash to support growth) and exploration (finding winning products and models), said Büchel.
For long term sustainable success, exploration is essential. Companies need a portfolio of different initiatives that not only protect the core product but also explore new markets.
In the short term, doing more of the same may not seem like a risky strategy, but in the medium-term not changing is detrimental – especially during times of disruption.
Often, the problem can lie with rigid budget cycles which make it harder for companies to scale up or scale down different parts of the business.
Businesses now need to be more agile and be able to shift resources - be it cash, talent or managerial attention - into different initiatives.
This means a fresh, customised approach to strategy and execution in different parts of businesses, as well as constantly re-balancing exploitation and exploration.
A learning process
The essential ingredient for strategic agility, said Büchel, is the ability of businesses to launch initiatives and to learn from their early implementation.
To learn quickly, piloting is critical before scaling initiatives to deliver value and help develop a blueprint that can be replicated.