CHAPTER  |  SIXTEEN

How to Avoid Failure

What I am about to say sounds counterintuitive. In fact, it is counterintuitive. But Drucker showed us that it is absolutely true, nonetheless. Peter Drucker found that if you continue doing what made you successful in the past, you will eventually fail. This has been true in all times and in every field, including not only business but also war, politics, and even sports. Companies, industries, and countries that have failed to understand this single principle make up the scrap heap of history. What is this one principle that will help you to avoid failure? Let me put it to you straight: Stop doing what made you successful!

Even Experienced Generals Have Trouble with This Lesson

World War I was fought in trenches, and the more formidable the trench defense, the more difficult to move forward. After four years of this, the participants all became proficient in this way of making war. The conflict was fought mainly on French soil, and the French were determined that this would never happen again. World War I trench warfare taught them the value of static defensive combat and exactly what needed to be done to make impregnable their border with their traditional enemy, Germany.

Under the direction of Andre Maginot, the French minister of war, France built what military experts around the world agreed was a work of genius. It consisted of a supertrench extending along the German border, with concrete fortifications connected by tunnels and with machine-gun emplacements, tank traps, artillery positions, and more. Soldiers were totally protected and safe from bombardment, sheltered not only by concrete but also by being housed underground. The world had never seen anything like it. It was impenetrable against direct attack. Nevertheless, the Germans easily defeated it in World War II. They simply went around the Maginot Line and attacked the French army through Belgium. So fast was their advance that a new name, blitzkrieg, or “lightning war,” was given to this new form of warfare. They stopped doing what had succeeded in the past and did something new.

Failures in Business

In recent years, we've seen failures of financial organizations so powerful we would never have thought it possible. Lehman Brothers, AIG, Merrill Lynch, Fannie Mae and Freddie Mac, Washington Mutual, and many others have collapsed, been bailed out by the government, been acquired by others, or are coping with serious problems brought on by their failures. Unfortunately, hundreds of other formerly successful organizations, big and small, are proceeding down the same primrose path to failure, in blissful ignorance that disaster awaits just around the corner.

This is not only a result of a recession. I'm talking about organizations that aren't in danger now. They are the ones that plan to operate following the same, successful ways as in the past. Drucker would say that they're making a big mistake.

The failures in the recent financial crisis are rightfully assigned to the catalysts that brought it on: derivative loans gone bad and the collapse of the housing industry. Yet those financial organizations might have seen the danger ahead. They could have taken Drucker's advice and changed course before it was too late. They might have seen that the situation was too risky, given the fact that any business boom will eventually go bust. They could have gotten out. Most didn't.

You can find all sorts of companies that could and should have introduced new products and services to replace their successful ones, but failed to do so. New technologies always supplant the older ones, so they shouldn't be ignored. The railroad, one of the great inventions of the nineteenth century, helped develop the American West and in the process created some of the wealthiest men in America. Yet by World War II, it was clear that air travel, superhighways, and buses would cut into the railroad's monopoly.

Marketing experts say it was a question of business definition. They say that the successful old-line companies, the B&O, the Union Pacific, the Atchison, Topeka and Santa Fe, and many others simply thought they were in the railroad business, when in reality they were in the transportation business. Had they given it deeper thought and defined their businesses properly, maybe we would have a Union Pacific Airline today.

Surely the ubiquitous slide rule, once carried by engineers worldwide, might have been easily identified as a candidate for immediate replacement once the handheld calculator came on the scene. I could go on, but you get the idea. The point is, like a lightbulb that burns its brightest just before complete failure, many companies and industries are at their best just a few years—or in some cases, just a few months—prior to their bankruptcy.

Unexpected Failures Have a Common Cause

Why do these unanticipated failures occur? Because the companies continued to blindly do what made them successful in the past. Why can't a company or organization continue to do what has made it successful? Because the environment changes in some critical way that invalidates the old rules. Maybe it's technology—something new like the automobile comes along and downgrades the horse from a means of transportation to a sport or pastime. Or it could be economics—the economy falls into depression or becomes inflationary. The first condition might cause potential customers to hold on to their money; the latter might cause them to spend more freely and in a much shorter period of time.

Frequently, it is social change that makes the difference. Bathing suits covering the entire body go out of fashion, but swimwear makers stick with what they know. Meanwhile, the bikini covers only a few square inches (the French inventors had to hire a nude cabaret dancer to model it in 1946, but today it's a billion-dollar a year industry). Prior to the 1950s, almost all men wore hats. Now, men's hats have been relegated to a few specialty stores.

You can't ignore politics, laws, or regulations, either. What was once legal can become illegal and vice versa. Prohibition of the sale of alcoholic beverages becomes illegal, or becomes legal (both happened in the 1920s in the United States), and causes major changes in the spirits industry, not to mention criminal behavior.

What about new actions by competitors? A competitor can become successful in an action that you have not anticipated. That's where the French failed with the Maginot Line. Apple Computer started the personal computer industry, but IBM's strategy of encouraging rather than restricting others in making compatible software gave IBM PCs the edge.

There are all sorts of other unexpected major events, from earth-quakes and storms to acts of terrorism. The terrorist attack on September 11, 2001, led to increased air travel restrictions and much greater security. As a result, there's been more talk of virtual meetings using new technologies including super-high-definition, three-dimensional electronic imaging.

The Future Cannot Always Be Easily Anticipated

Drucker gave us some good ideas on how to predict the future, but he said that the best way was to create the future ourselves. You might think senior leaders can easily anticipate and readily prepare for change. But this is rarely the case, for several reasons. These leaders have been successful because they were effective under the old paradigm. Their own and their organization's prior actions made them and their companies successful. So, they are comfortable with the old way, hesitant or not open to some new, unproven ideas or ways of doing business. Some are afraid to deviate, afraid to make a mistake. They invested heavily in the old model and they want to avoid anything that indicates they must invest again or start over. It takes an exceptional leader to decide to make the change, or even to utter words implying that change will be necessary.

Of course, there is a challenge involved in adopting Drucker's counterintuitive advice. It would be foolish, even dangerous, to abandon successful products, organizations, strategies, or weapons systems while they are still profitable and useful. How, then, can you recognize that significant change is near? How do you know when to take action with your products, services, or means of operating so as to be ready? Here are a few suggestions:

• Keep your eyes open and know what's going on. Familiarize yourself not only with new products but also with anything else that could remotely affect your operations. This means a steady regimen of reading trade journals, newspapers, and other relevant media. Drucker said his ability to predict the future was possible by simply thinking about events that had already happened, and what changes these events would cause in the future.
• Play a “what if” game with yourself. What would you do if…?
• Watch trends and new developments closely. If sales drop over several quarters, find out why. Do not automatically assume that everything will “return to normal.” There is no normal.
• Face facts. Nothing lasts forever, so prepare yourself mentally for change and take action when necessary, regardless of your previous investment in time, money, or resources. He who hesitates is lost!
• Don't do things differently just for the sake of doing so, but establish a program of continual review for every product, strategy, tactic, and policy.
• Aggressively see change as an opportunity to stay ahead of the competition. That's what Ford did when sales of its Falcon were faltering. They noticed that certain options such as the four-on-the-floor and the padded dash were increasing, so they introduced the Mustang, which gave them a multiyear lead over the competition.
• Never be afraid to obsolete your own products, services, and strategies, and look for better ways to meet the demands, wants, and needs of your customers.

Do these things and you'll not only stay ahead of the competition, you'll survive and succeed brilliantly while others, plodding on in the old way, will falter.