CONFUSING GROWTH WITH EXCELLENCE! “George Merck, Paul Galvin, Bill Hewlett and David Packard viewed expanding not as the end goal, but as a residual result of pursuing their core purpose. Later generations forgot this lesson. Indeed, they inverted it.”
MOTOROLA Iridium An engineer came up with the idea of satellite phone. It started as a small experimental project. In 1991 Motorola spun out Iridium in a separate company. By 1996 Motorola had invested $537 million. Iridium launched in 1998. The very next year Iridium filed for bankruptcy.
MAKING BIG BETS IN THE FACE OF MOUNTING EVIDENCE IN THE CONTRARY As companies move into stage 3, we begin to see the cumulative effects of previous stages. This describes what happened with Iridium. TI’s investment in DSP Chips. TI dared to take a big leap, it based its decision on a firm foundation of proven success. Audacious goals stimulate progress, but big bets with out empirical validation can bring companies down.
TAKING RISK BELOW THE WATERLINE Bill Gore, founder of W.L.Gore & Associates, articulated a helpful concept for decision and risk taking. “Waterline” principle. Decisions gone bad will blow a in the side of the ship. If you blow a hole above the waterline, you can patch the hole and learn from the experience. But if you blow a hole below the waterline, you will find your self in trouble. Great enterprises do make big bets, but the avoid big bets that could blow hole below the waterline.
When making risky bets and decisions in the face of ambiguous or conflicting data, ask three questions: 1. What’s the upside, if events turn out well? 2. What’s the downside, if events go very badly? 3. Can you live with the downside? Truly?
A CULTURE OF DENIAL Companies can also gradually weaken, and as they move deeper into stage 3, they begin to accumulate warning signs. Deteriorating in gross margin, current ratio or debt-to-equity ratio. Change in Leadership-Team Dynamics. Power Blame.
Stage 4 begins when an organization reacts to a downturn by lurching for a silver bullet. The key point is that they go for a quick, big solution or bold stroke to jump-start a recovery. Companies stuck in stage 4 try all sorts of new programs, new fads, new strategies, new visions, new cultures, new breakthrough, new acquisition and new saviors. And when one silver bullet fails they go for another, and then another.
Stage 5: Capitulation To Irrelevance Or Death 17
Accumulated setbacks and expensive false starts erode financial strength and individual spirit to such an extent that leaders abandon all hope of building a great future. In some cases, their leaders just sell out; In other cases, the institution atrophies into utter insignificance; And in the most extreme cases, the enterprise simply dies outright.