Keith Stone, the general manager at Eastern Feed and Grain, Inc., was still shaking his head as he reviewed his year-end financial statements. Revenues were off 20% and the organization was posting a (significant) loss for the first time in 15 years.
The results were shocking: Eastern Feed and Grain had done much better than just weather the storm in the recent past. In the three years leading up to the current year, the firm had posted year over year sales increases in the 10% to 15% range. Profits had been solid. Stone had experienced low turnover among his staff and morale seemed good. A few key customers had drifted away, but nothing to worry about. It seemed other customers had increased their business with Eastern and a few new ones had been acquired, offsetting the lost customers.
As a general manager, he had stayed focused on running the business as efficiently as possible, controlling costs, keeping receivables in line, and carefully managing his line of credit and overall debt. He had been quite proud of the way the business had performed in such an uncertain economic time.
In January with livestock prices coming back and grain prices strong, this year had held so much potential, but over the course of the year it seemed he simply could not get a good grip on what had happened to his organization’s performance.
This manager’s situation reflects the worst nightmare for anyone leading an organization: One minute you are on top of the world; the next you are struggling to pick up the pieces. How can things be so good one day, and turn south the next — especially when you as manager are “doing all the right things”?
This article will take a look at why some organizations that seem to have everything going in the right direction can quickly fall into a state of decline. We will also take a look at how to build a “sense of urgency” into an organization to keep it moving forward and not get caught up in a state of complacency. We will draw on two excellent books, both small but insightful: How the Mighty Fall by Jim Collins and A Sense of Urgency by John Kotter. These slim volumes say much about how to help an organization pick up the pace in today’s highly uncertain environment.
Objectivity combats complacency
Staying at the top is an incredibly difficult thing to do. The McKinsey Quarterly (2006, No. 2, pages 78-79) reported on two studies done at the University of Memphis and the University of Texas at Austin. The studies found that many companies can manage strong short-term performance, but few can sustain that performance over time. Looking at 6,772 companies over 23 years, only 5% were able to remain in the superior performance category 10 years or more.
There are many reasons for this, such as shifts in technology, major changes in demand, new competition, bad luck, etc. But beyond these reasons, one factor that can creep into any successful organization is complacency. Almost no successful organization is exempt from the problem of complacency. It is simply human nature to relax once you have made it to the top, once you are No. 1, once you are the market leader. The problem of complacency is compounded by competition.
The (very) old Avis rental car advertisement said, “We are No. 2, but we try harder.” And, hungry competitors, firms and organizations not at the top, surely want to get there. Finally, motivating an organization to get to the top can sometimes be easier than motivating an organization to stay at the top.
Note here that a complacent organization is not one that has decided to coast, take it easy, let things slide — a complacent organization may be busier than beavers doing what they have been doing until the reality of the market clobbers them and a new market leader is crowned.
In How the Mighty Fall, Jim Collins lays out a five-stage process of decline that helps explain the tailspin companies can get into. We will highlight only the first stage here — what Collins calls “hubris born of success.” His idea is pretty straightforward: