Guarding against complacency in the enterprise

Guarding against complacency in the enterpriseComplacency is a natural, almost inevitable feature of human behavior. It really is very difficult to recognize the need for change, especially as companies that experience hard times have almost always had a very successful past.

Motorola experienced sliding market share for five years before they recognized that maybe they should do something about it. Harley-Davidson almost went bankrupt and saw their domestic market share fall from over 80% to below 5% before their turnaround began. A similar story could be told of many other companies. Complacency is not rare, it is, in fact, systemic. So is there something we can do about it?

Signs and symptoms of complacency

I have had the pleasure to be involved in two companies at the peak of their historic earnings, and in a central role in the turnaround attempt of one of them. In hindsight, the complacency in both cases is so clear that it is amazing that it was not spotted at the time. Actually, that description is not completely accurate. In both cases, there were lots of discussions among the rank-and-file employees about the major issues, but no one felt that there was any chance to change any of those, and many even just accepted them as facts of life, no matter how inconvenient. Sadly, in a recent book that researched company turnarounds, Resurgence, no examples of a successful grass roots turnaround were discovered. Successful turnarounds only happened with full executive support. Coupled with the fact that the executives are often the last to recognize the problems, this makes for one difficult problem.

One lesson learned is that the year when a company makes its record profit is not necessarily the year when it is at its best. This is quite logical, when you think about it: profits are the result of innovation (Schumpeterian rents), and it usually takes some time for an idea to turn into a product and then into sales. Thus, the revenue a company is now generating is in large part based on things done in the past. The longer the cycles in a company’s market, the longer its operations can decay before the bottom line is significantly affected.

A company is always either improving or regressing, there is no such thing as standing still. This point really became clear to me when I had a chance to revisit an information management process I had played a part in creating five years earlier. I had changed roles in the meantime, so while I had been working hands-on with the process for the first couple of years, I had not really seen it applied for the other three. My initial assumption was that the process would still be running as it was, if not improved upon, but the reality was that parts of the process had decayed to a point where it was no longer successfully conveying the information it was built to convey, and several people who were actively working with the process expressed their dissatisfaction with the current state. Yet, no one had intentionally changed the process, and the people working with it felt that they did not have the power to put it back on track. It took some time before the decay caused problems large enough to attract notice and investigation, and that fact lies at the heart of larger issues as well – decay takes place almost unnoticed and it usually takes a fair bit of problems and time before management attention is turned to the issues.

Partial solutions to complacency

So what can be done to guard against complacency? Sadly, the authors of Resurgence did not find any companies that would have been successful in guarding against complacency in their research, so this does not bode well for our quest.

Clearly, revenue and profits are a lagging indicator of company performance, so it is not possible to detect decay in good time based on them. We need something else.

If the problems are known at some part of the organization, but the people there are powerless to change them, two alternative paths open up: either the people with power need to be more aware of what is going on at the company, or power needs to be more distributed so that more people can act on problems. It may be that pursuing both options is the best alternative, and the easiest solution may also depend on company size.

Incidentally, models that respond to questions of enterprise agility also provide answers against complacency. One such model is Lean, which pursues both avenues to minimize complacency: with a relentless focus on the gemba (the place where the work is done), Lean executives are more hands-on at their company than traditional executives, and with a strong program of continuous improvement, where all employees participate in and are empowered to act, power is distributed more than in the traditional model.

However, as a scary example, even a company that attempts to pursue both of these avenues is susceptible to complacency: think early-2000s Toyota and its recall crisis. Many accounts have been written about Toyota’s problems, but the general consensus seems to be that Toyota lost some of its focus on continuous improvement and the Toyota Way as a result of extreme growth. Even a company that has successfully practiced Lean for decades is not immune to losing its way, especially during times of rapid growth.

Thus, there does not appear to be a silver bullet to fighting complacency. Dissatisfaction with the status quo and attempt to continuously move forward even when things are apparently well is the key, but that is very difficult for human beings to do.

When major threats are absent, one avenue to motivate people to keep improving is to point out new, exciting opportunities for the company to pursue.

If the company has nothing left to achieve, it is especially prone to fall (think mid-20th-century Harley-Davidson, 1990s Motorola, and 2000s Nokia).

 

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Author: Ville Kilkku

I run my own consultancy business, so if you find the ideas on this blog intriguing, contact me at consulting@kilkku.com or call me at +358 50 588 5043 and we can discuss how I can help you solve your business problems. I am currently based in Tornio, Finland, but work globally. Google+