Skip to content

We Need To Stop Searching For The One Magical Thing Can Make A Business Successful

2016 May 8
by Greg Satell

Studies show that over 90% of startups fail. Even for those rare few that make it big, life doesn’t get much easier. In fact, only slightly more than 10% of the firms on the original Fortune 500 list are still in business today. Making an enterprise successful and keeping it that way is a staggeringly hard thing to do.

So it’s not hard to see why there has been so much effort devoted to narrowing down a company’s performance to a single factor.  Some say that focusing on the customer is key. Others believe that building a great culture is the true path to success. Still others preach the gospel of developing capable leaders.

In The Halo Effect, IMD’s Phil Rosenzweig pours cold water on all of these. Firms that are successful, he points out, are perceived as being customer focused, having a great culture and building strong leadership, but when those firms hit hard times, critics claim that they are failing in those very same areas. To truly understand performance, we have to look deeper.

Focusing On The Customer

Peter Drucker once said that “the purpose of a business is to create a customer.” Sam Walton, the legendary founder of Walmart put it even more emphatically when he said, “There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”

The value of customer service has long been taken as an article of faith, but two academics, John Narver and Stanley Slater sought to quantify the effect by studying actual companies. Perhaps unsurprisingly, they found a high correlation between customer orientation and profitability, and the relationship held for both commodity and non-commodity business.

But not so fast, says Rosenzweig. What did the study actually measure? Reality or perception? For example, when Cisco was at its peak before the dot-com bust, it was said to have an “extreme customer focus.” But a year later, when things turned south, Cisco was criticized for “a cavalier attitude toward potential customers” and “irksome” sales policies.

Take a closer look at the Narver and Slater study and you’ll find that their method of research was questionnaires sent out to senior executives. So it’s not surprising that managers at successful companies felt that they were doing a good job by their customers and poorer performing companies felt otherwise, but that doesn’t really tell you much.

Building A Great Company Culture

In Who Says Elephants Can’t Dance?, legendary IBM CEO Lou Gerstner wrote, “Culture isn’t just one aspect of the game—It is the game. Is it a culture that rewards individual achievement or team play? Does it value risk taking or consensus building?” Culture, as I’ve written before, is how an enterprise honors its mission.

So it makes sense that when researchers study corporate cultures they consistently find a strong correlation with performance. Happy, motivated employees result in happy, satisfied customers. The result is higher margins and an improved bottom line, pretty much anywhere anyone has bothered to look.

Yet again, there’s a serious question about cause and effect. Rosenzweig points out that when Cisco was flying high, it was said to have an unparalleled culture with shiny, happy people who worked long hours but loved every minute of it.” But when the market tanked, all of the sudden its culture came to be seen as “cocksure” and “naive.”

Is it really possible that a company’s culture can change so quickly? If so, what good is culture? Or are we merely seeing culture through the lens of performance? So when an organization is doing well, we see them as “idealistic” and “values driven,” but when things go sour, those same traits are seen as “arrogant” and “impractical.”

The Value Of Strong Leadership

Take a look at any great company and you’ll find a great leader. IBM and Tom Watson. General Electric and Jack Welch. Apple and Steve Jobs. People who are seen as effective leaders are given stratospheric salaries and are lauded in the media. Business school case studies are written to help us understand just how great they really are.

Yet was this always true? In the 1950’s the average CEO-to employee pay ratio was 20-1. By 1980 that ratio grew to 42-1. Today, corporate leaders make more than 200 times what the average employee earns. Have leaders really gotten ten times better? If so, why are CEOs today getting fired so much more often?

The truth is that the idea of heroic leaders is mostly a myth. Leaders can do very little by themselves and so the quality of leadership is often in the beholder. No leader is perfect. All have an assortment of qualities. If an organization is doing well, then we see the positive aspects of leadership, but once things turn south, we are reminded of the things we don’t like.

So when earnings take a dive, the “tough but fair” CEO somehow becomes “an egomaniac”and the “inspirational thought leader” becomes “a quixotic fool.” It’s often hard to determine exactly which is cause and which is effect.

The One True Common Denominator

Clearly, it matters how businesses are run. Good leadership, an effective culture and customer focus are important. Still we shouldn’t get carried away. A study by Michael Porter and Anita McGahan found that less than a third of a firm’s performance can be ascribed to internal factors, while the rest was dependent on the performance of the industry and/or the corporate parent.

So instead of merely praising firms that are doing well and excoriating those that do badly, perhaps we should look at the one true thing that all successful companies have in common—sooner or later all hit hard times. Technology changes, markets turn and consumer tastes turn fickle. When any of those things happen, you will take a hit.

And if you look at anybody who has achieved extraordinary success, you will find that they had to transcend failure. Einstein couldn’t find a job as a professor and had to take a job as a clerk in a patent office. Michael Jordan didn’t make his high school basketball team. Steve Jobs was fired from the company he founded.

So instead of trying to find that magical skill or strategy which will rocket us to the top, we’d be better off preparing ourselves for the rocky road ahead. We are sure to falter at some point—and probably often—but that never has to be the end of the story. The only way to truly fail is to stop trying; the only true disgrace is to accept defeat.

– Greg

10 Responses leave one →
  1. May 8, 2016

    Greg, thanks for another thought-provoking post.

    This post leaves me wanting to continue the conversation with a series of questions:

    Does this mean that we should look for organizations to join/emulate/invest in/partner with that know how to successfully adapt to external changes? IBM comes to mind. Sears does too, for the opposite example.

    What makes an organization capable of adaptation? Focus, culture, and leadership? Hmmm

    Is the organizational ability to adapt as critical for non-profits and volunteer organizations? My recent experience seems to indicate that to be the case, but I never have thought about it before.

    Thanks for disturbing my Sunday morning! Don

  2. Selam permalink
    May 8, 2016

    Thank you for making me ponder this morning. Your thought provoking ideas resonate with me. Though your article is for profit companies, what are your thoughts on non-profit organizations? Thanks for making me reflect this morning!

    Have a great day,

  3. May 8, 2016

    Hi Don,

    Great question. This is something I’ve been thinking about and researching a lot lately. Firms like IBM and Microsoft do think 10 or 20 years down the road and have been able to continue to thrive long after their competitors have gone away. While they’ve had some highs and lows, they’ve done super well over time. Others, like P&G don’t have longer time frames, but also seem to be able to continually create new businesses.

    I think we put too much emphasis on adapting and not enough on preparing. In Watson an adaptation? What was IBM adapting to 20 years ago when they were building its precursor, Deep Blue? What about Swiffer and Febreze in the case of P&G or Microsoft’s Hololens?

    So I think every organization needs to understand that things will look very different in 20 years and start thinking seriously about how they will build new capacities to prepare for change. Companies rarely die out because of a lack of strategy. More often, they lose the capacity to compete.

    – Greg

  4. May 8, 2016

    Hi Selam,

    See my response to Don below. I think the same things apply equally to public and non-profit organizations.

    – Greg

  5. May 8, 2016

    Good point. The management literature is full of descriptions of various capabilities that are central to adaptation, but it is the preparation and practice that makes a difference. I suspect, but never studied it, that the time horizon should be dependent on the technology and market characteristics.

    One more thought: some companies seem good at preparing for and commercializing “accidents.”

    Thanks again. Don

  6. May 8, 2016

    Hi Greg, Change starts with open discussion and asking better questions so your post certainly touches on a variety of topics near and dear to all entering that discussion. The most impressive book I am now reading following 8 others, is The Conscience Economy by Steven Overman. The book in general speaks to our need to evolve faster from awareness and conscious cultures to more committed, unifying cultures of conscience. It speaks well to how companies with a purpose (conscience) stand for something that unites internal and external forces. I have spoken with other consultants and as you also infer, alignment is a critical need but how you create it can not be superficial. Leadership – I agree there are too few Jobs or per my own experience of the best leaders; Hewlett’s and Packard’s out there. That begs attention to inclusion and self managed teams. The Gallup Report stated that 77% and 87% internationally of employees are emotionally disconnected with work. But if you ask most leaders, most will infer “that’s not us”. Gallup also inferred that middle management superficiality (no cohunes’) was the biggest issue cited as too few listen to employee’s ideas or are open to challenging the status quo. Your comment that leaders and cultures crumble when times get tough to me infers their culture was based on a weak platform versus something more sincere and sustainable over time.

    I earned trust while challenging the status quo all my years in HP but failure was never an option as every time my job was on the line. While this is a rich topic I could share a lot on and still learn, I will share the following:
    1. Too many leaders look for quick fixes or pinpointing problems thus they fail to see the system behind everything. We have escalated the VOC to VOE so the Voice of the Ecosystem is better understood. But there is a lot more that we found that can be naturally integrated versus set apart and doomed for failure.
    2.Too many solution providers take a disparate view of the problem and its cycles. Some pitch agility and teams end up chasing their tails. Some pitch conscious – soon conscience solutions but these and many others – digital transformation, customer experience management – are just limited views of a bigger system.
    3.I also think too much attention is given to technology, capital assets and not enough to the humanity that makes or breaks business success.

    The solution I am refining integrates most or all of the system components into a more natural, human-centric (internal and external) sustainable whole. Without that view, we continue to spin down this resistance or partial effort rat hole.

  7. May 8, 2016

    You said in closing the above article that “The only way to truly fail is to stop trying”–I’ll have to disagree with you on that, if your time in this life runs out while you are still trying!!

  8. May 9, 2016

    Fair point:-)

  9. May 9, 2016

    Interesting ideas. Thanks for sharing them Bill!

    – Greg

  10. May 9, 2016

    I’m not sure I believe in accidents. Most of the time, when we hear about accidents leading to a great innovation, such as Alexander Fleming and penicillin or 3M and post-its, we find there is far more at work. Usually, these accidents occur in a discovery driven environment, so the fact that a discovery comes unexpectedly, really isn’t that that big a deal.

    Take the story of Fleming. He did discovery penicillin by accident when a petri dish became contaminated with the mold, but he was, after all, studying bacteria in the first place. His decision to study the mold rather than throwing it away was indeed laudable, but not all that surprising. Also, the discovery didn’t directly lead to a breakthrough, but a scientific paper that was mostly ignored. It wasn’t until a decade later that another group entirely began working to transform penicillin into a useful drug.

    In the case of 3M, the company invented the idea of 15% time and has a deep focus of bringing new products to market. It was a scientist working on adhesives that started using one of his discoveries to mark pages in his hymnal book at church that led to the breakthrough product.

    So while these could be called “accidents,” I think when you put them in the context of a broader exploratory process, they are not that surprising.

    – Greg

Leave a Reply

Note: You can use basic XHTML in your comments. Your email address will never be published.

Subscribe to this comment feed via RSS