Don’t Give In to Upheavals

Jared Diamond, a historian, anthropologist and self-described polymath, is one of my favorite writers. After I read his groundbreaking Guns, Germs and Steel, I was hooked. Although he writes about societies and nations, I found his latest book Upheaval of particular relevance to organizations, especially with the parallels between the themes in this book and Jim Collins’ earlier book How the Mighty Fall.

In Upheaval, Diamond first discusses the twelve factors that make it more or less likely that an individual will succeed in resolving a personal crisis (this is based on research on crisis therapy): 1) acknowledgment that one is in crisis, 2) acceptance of one’s personal responsibility to do something, 3) building a fence to delineate one’s individual problems needing to be solved, 4) getting material and emotional help from other individuals and groups, 5) using other individuals as models of how to solve problems, 6) ego strength, 7) honest self-appraisal, 8) experience of previous personal crises, 9) patience, 10) flexible personality, 11) individual core values, and 12) freedom from personal constraints.

He then suggests that many of these factors also apply to examining how nations deal with national crises. That is, the outcomes of national crises may depend on how they address these factors; for example, national consensus that one’s nation is in crisis (Factor #1), acceptance of national responsibility to do something (Factor #2), and building a fence to delineate the national problems needing to be solved (Factor #3).

I found many parallels between his work and Jim Collins’ earlier work, in which he wrote about what happens to those organizations that fail over a period of time. Collins wrote about five stages that such organizations go through on their way to failure; here are some details on each of these stages, with some examples from my own experience and knowledge.

The first stage he calls hubris born of success. Stage 1 kicks in when

“people become arrogant, regarding success virtually as an entitlement, and they lose sight of the true underlying factors that created success in the first place. When the rhetoric of success (‘We’re successful because we do these specific things’) replaces penetrating understanding and insight (‘We’re successful because we understand why we do these specific things and under what conditions they would no longer work’), decline will very likely follow.”

Here’s an example. In 1876, Alexander Graham Bell went to Western Union and offered to sell them the patent for the telephone. No thanks, Western Union said. They could not imagine the telephone being anything more than a niche product while the telegram business had been so successful for them.

The second stage is the undisciplined pursuit of more, and organizations overreach. These firms jump “into areas into areas where they cannot be great or grow faster than they can achieve with excellence, or both.” Not many may remember this, but when a GE veteran (Hicks Waldron) from the Jack Welch era became CEO of Avon Products in the eighties, he proceeded to transform the company into a GE-like conglomerate – purchasing companies as diverse as Tiffany and Mallinckrodt (a specialty pharmaceutical company). This did not work, and fortunately, he let the company after a short and rocky tenure.

The third stage is the denial of risk and peril. At this point, there are internal warning signs but

“external results remain strong enough to ‘explain away’ disturbing data or to suggest that the difficulties are ‘temporary’ or “cyclic’ or ‘not that bad,’ and ‘nothing is fundamentally wrong,’ so leaders discount negative data, amplify positive data, and put a positive spin on ambiguous data. Those in power start to blame external factors for setbacks rather than accept responsibility. The vigorous, fact-based dialogue that characterizes high-performance teams dwindles or disappears altogether.”

Through the eighties, General Motors built nine out every 20 new cars in America. When its sales started to decline, it blamed the unions and cheap Japanese imports, while it continued to push its high-profit-margin trucks. GM did not believe that the Japanese cars would ever be successful in its own home market.

The fourth stage is grasping for salvation:

“Common ‘saviors’ include a charismatic visionary leader, a bold but untested strategy, a radical transformation, a dramatic cultural revolution, a hoped-for blockbuster product, a ‘game-changing’ acquisition, or any number of other silver-bullet solutions. Initial results from taking dramatic action may appear positive, but they do not last.”

Sometimes, these charismatic CEOs are brought in from the outside, like Bob Nardelli to Home Depot and Marissa Mayer to Yahoo; other times, they are promoted from within, like Steve Ballmer at Microsoft. But their flashiness and charisma did not help their firms to succeed.

The fifth stage is capitulation to irrelevance or death. Here,

“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.”

It seems to me that of the twelve factors that Diamond lists, there are several that apply to organizations in crisis, and if not heeded, will lead to the various outcomes that Collins describes. So in these times when the pandemic is uprooting much of our lives and those of many businesses, here are six key lessons for leaders, as filtered through Diamond’s and Collins’ lenses.

1. Acknowledge that the organization is really in crisis. Of course, it is virtually impossible these days to deny the fact that many organizations – including yours, I am sure – are indeed facing tremendous challenges. These include firms from industries such as the airline, hospitality and consumer retail sectors. However, even if an organization happens to be fortunate because of the current demand for its products or services (such as P&G, Peloton and companies selling casual wear), you can never be complacent. I love Jeff Bezos’ mindset and mantra, “It’s always Day 1.” The business environment is so unpredictable these days that you always have to be prepared and have contingency plans.
2. Accept that it is your personal responsibility – not just the CEO’s – to do something. This parallels Collins’ Stage 2, the denial of risk and peril, and it happens especially in organizations where leaders are afraid of raising uncomfortable issues with their CEO, and/or when the CEO has such a strong hold on the firm that he refuses to even consider an alternate business scenario.
3. Identify the organizational problem that needs to be solved. I have seen too many CEOs, especially those from the outside, stir things up and start introducing changes that run counter to the firm’s core advantages, or perhaps simply do this for the sake of disruption. Look what Ron Johnson did when he became CEO of J. C. Penney and wanted it to become like a J. Crew. That didn’t work, and Johnson was out a year later.
4. Do an honest appraisal of your organization’s strengths and weaknesses. I’ve led a number of sessions with executive teams on doing deep-dive SWOT analyses, and if everyone does their homework and are willing to speak up, this exercise can really be eye-opening. A few years ago, Howard Schultz had expanded Starbucks with a strategy of growing hyper-fast and cannibalizing its own stores’ sales. But sales could not keep up with the openings and after acknowledging his mistakes, Schultz and his company had to close over 150 stores. Now Starbucks is instead concentrating on expanding its delivery and increasing its advertising.
5. Be patient and flexible. In 2012, Best Buy was struggling, and some were predicting its demise, similar to Circuit City a few years earlier. But when Hubert Joly took over, he realized that the company had to adapt and patiently started to build a strong customer experience as well as a strong employee experience (while at the same time cutting costs). Best Buy is one of business’s best success stories of the past decade. As another example, Brian Chesky, a co-founder of Airbnb, saw revenues at his company plunge after the pandemic hit. But then he realized that people were looking for vacation places closer to their homes. He adjusted his firm’s strategy quickly and “… redesigned its website and app so its algorithm would show prospective travelers everything from cabins to lavish beach houses near where they lived.” By July 8, guests had booked stays at the rate they were just before the pandemic. In August, more than half of bookings made were for stays within 300 miles of the guest’s location (October 12 of the Wall Street Journal).
6. Don’t lose sight of the organization’s core values. When I advise executives who are engaged in transformational change, I always recommend that they communicate, in addition to why the changes are necessary, what will NOT change in the organization. Often, this means reinforcing the organizations’s core values, especially around X, Y and Z (substitute the letters here for the organization’s values).

References:

Collins, J. (2009). How the Mighty Fall, and Why Some Companies Never Give In. New York: HarperCollins.

Diamond, J. (2019). Upheaval: Turning Points for Nations in Crisis. New York: Little. Brown.