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The case of how the shared workspace company WeWork went from being a darling of American business to bankruptcy is an example of a long line of business failures that stem from an inability of top management to adjust to a major change that has occurred in the world.
Many do not see the iceberg ahead, but some can shift course
The RMS Titanic sank in 1912 because everyone thought she was unsinkable. Human hubris and pride is a flaw we all have. Even C-level executives have it despite their opinions to the contrary, and old practices that worked well in the past are hard to change.
Take for example Nokia, a giant in the analog cellphone sector. When Apple launched its iPhone, and Google came out with the Android operating system, the Finnish giant which had pivoted earlier from the lumber industry radio business to cellphones decided to stick it out with its proprietary Symbian operating system. The market did not agree, and soon thereafter Nokia lost its lead in the industry along with players like Sony Ericsson and Motorola to newer phone makers like Samsung and Apple.
When Netflix was a puny startup, they offered themselves up for sale for $50 million to Blockbuster, which declined Netflix’s DVD mailing movie business. During that time, Blockbuster was the giant in the VHS/DVD movie rental business, with a retail store presence on many street corners. Unfortunately for them, they failed to recognize the changes that had occurred, namely that streaming video technology had become cheap. Netflix on the other hand was humble enough to recognize the shift and is now one of the major behemoths of the NASDAQ.
Related: How Pivoting Saved My Business When Things Didn’t Go According to Plan
Often those who have stellar educational backgrounds fail to recognize these shifts particularly if success is all they have encountered with the status quo. It is after all hard to question why you are successful. Most people will simply take it for granted, and in some cases, decide that their special management abilities are what led to their success.
On the positive side, one example of a major strategic shift that was executed successfully was when Intel under their late CEO Andrew Grove with cofounders Robert Noyce and Gordon Moore led their business shift from memory chips to the new business of microprocessors in the ’70s. It is easy to make that shift as a business if the current business is losing money, but harder if it is making tons of money. In Intel’s case, they decided that if new management came in, they would shift to microprocessors because of the upcoming personal computer (PC) business with IBM and others, so they decided that they would do it instead.
Grove pointed out in his management bestseller book, Only the Paranoid Survive, that each company and industry might in its future face what are called Strategic Inflection Points. These are key moments when management should recognize that something major has shifted, and if a company is unable to pivot, the company might face a decline or even extinction.
How, then, should we act?
The number of eventual business failures that have graced the covers of top business magazines shows that hubris is everywhere. A real business leader, to remain successful throughout the duration of a career along with the company should also exhibit some humility.
What is worse is we often try to defend our positions and use confirmation bias, even if the data that supports our argument is random to begin with. Meaning that the data, while appearing to support your position, does not.
The first step we need to do is to admit that as human leaders, we are not infallible. Every one of us can make mistakes. Appearing on the cover of a business magazine and getting invited to speak in prestigious global forums like in Davos, Switzerland or sitting in the C-Suite does not make us less human.
Next, learn some statistics, such as how to use an XY scatter plot. At least enough so that you know you need enough data to show a real correlated trend. Learn not to infer a trend from a random set of data that does not even show a line or a curve if graphed. Just because you got three coin tosses as heads does not mean that the next coin toss will land the same as before.
A turkey’s life before the ax falls on its head is pretty good. The turkey is well-fed and gently treated. In short, past performance is not an indicator of future performance.
If your data already shows a trend, do not suffer from analysis paralysis just because you are incapable of shifting gears. If it is time to change course, just do it. Discuss with your team what to do if you are wrong and actually make that shift in direction. Have a pre-agreed exit strategy from the position you first took, no matter how hardcore you were. If something has changed, be ready to pivot.
Related: Knowing When — and How — to Pivot Is Key to Your Business’ Survival. Here’s What You Need to Do.
Do not become extinct
Having the ability to spot when something has changed, and the willingness to abandon the success of the past that may no longer be true for a new uncharted course is part of good business leadership.
It is not risk-free, but it is necessary. It can prolong your business for the next few decades to come if your company masters this skill — otherwise, you’ll become just like the dodos and dinosaurs.