‘pol­i­tics’ of fail­ure

The Smart Manager - - Contents - SOM SEKHAR BHATTACHARYYA IS AS­SO­CIATE PRO­FES­SOR (STRATE­GIC MAN­AGE­MENT) AT NITIE, MUM­BAI.

Som Sekhar Bhattacharyya, NITIE, of­fers a cul­tural per­spec­tive to ex­pli­cate why or­ga­ni­za­tions do not act on im­pend­ing risks.

Nokia’s once-stel­lar per­for­mance was un­der­mined by mis­aligned col­lec­tive fear: top man­agers were afraid of com­pe­ti­tion from ri­val prod­ucts, while mid­dle man­agers were afraid of their bosses and even their peers. It was their re­luc­tance to share neg­a­tive in­for­ma­tion with top man­agers—who thus re­mained overly op­ti­mistic about the or­ga­ni­za­tion's ca­pa­bil­i­ties— that gen­er­ated in­ac­cu­rate feed­back and poorly adapted or­ga­ni­za­tional re­sponses that led to the com­pany’s down­fall.* It is not just Nokia, but many oth­ers who have fallen prey to com­pla­cency and turned risk-averse. New tech­nolo­gies are grow­ing per­va­sive by the day and or­ga­ni­za­tions can ill-af­ford to ig­nore its im­pli­ca­tions.

Ken­neth An­drews did sem­i­nal work on why firms fail by study­ing the fail­ure of many great US com­pa­nies dur­ing the 1960s (An­drews, 1971). That decade was piv­otal for US firms be­cause till then they got free ac­cess to the mar­kets of Western Europe be­ing re­built as per the man­date of the Mar­shal Plan post World War II. Post 1960s, firms in Eng­land, Ger­many, France, the Nether­lands, Bel­gium, and Italy were on the re­vival path and started re­cap­tur­ing their do­mes­tic mar­kets. Post World War II, strength­ened by su­pe­rior man­age­ment pro­cesses and prod­ucts, Ja­panese firms tar­geted the US mar­ket. So, US firms faced com­pe­ti­tion both in the in­ter­na­tional and do­mes­tic mar­kets. Schol­ars like An­drews were in­ter­ested in un­der­stand­ing why the US firms failed and did not re­spond ap­pro­pri­ately. Many schol­ars at­trib­uted this to the lack of ded­i­ca­tion of per­ti­nent or­ga­ni­za­tional re­sources and ca­pa­bil­i­ties to cater to the mar­ket and busi­ness

en­vi­ron­ment re­quire­ments (Ma­honey & Pan­dian, 1992). Thus, the proac­tive na­ture and in­tent of firm man­age­ment to de­velop and de­ploy new as well as ex­tant or­ga­ni­za­tional re­sources and ca­pa­bil­i­ties mat­tered. Sim­i­larly, in In­dia quite a few fam­ily-owned busi­ness firms per­ished post lib­er­al­iza­tion, pri­va­ti­za­tion, and glob­al­iza­tion in 1991 (Ke­dia, Mukher­jee & Lahiri, 2006). How­ever, one must note that quite a few busi­ness firms also flour­ished post 1991 not just in the In­dian mar­ket but also in for­eign mar­kets. It is im­por­tant to un­der­stand why firms that failed did not de­velop or de­ploy re­sources and ca­pa­bil­i­ties at all (or in time) to mit­i­gate the im­pend­ing cri­sis. The case stud­ies of the de­cline of Ko­dak, Xerox, Mo­torola, and Nokia prove the point.

the neg­a­tive nar­ra­tives

Ko­dak was known for man­u­fac­tur­ing best-qual­ity ana­logue cam­eras (Lu­cas Jr, & Goh, 2009). They peaked sales in the late 1980s, clock­ing max­i­mum sales in terms of units, rev­enue, and profit. How­ever, Ko­dak did not re­spond to the new tech­nol­ogy in pho­tog­ra­phy that was be­ing de­vel­oped in the 1970s and 1980s—dig­i­tal tech­nol­ogy. One must re­mem­ber that Ko­dak did de­velop dig­i­tal cam­eras (in­dica­tive of the devel­op­ment of spe­cific firm re­sources and ca­pa­bil­i­ties) but did not com­mit sub­stan­tially to make it a suc­cess­ful busi­ness. Any young con­sumer would have agreed that dig­i­tal pho­tog­ra­phy (cheap, durable, sup­port­ing ex­per­i­men­ta­tion, and of­fer­ing bet­ter qual­ity) was the fu­ture. It is per­ti­nent to seek an­swer to the ques­tion: why did Ko­dak not re­spond to dig­i­tal pho­tog­ra­phy op­por­tu­ni­ties com­pre­hen­sively? Why did they con­tinue to stick to ana­logue pho­tog­ra­phy?

Let us con­sider the case of Xerox, the mighty pho­to­copier firm (Parikh, 2001). The PC in­dus­try flour­ished since the 1980s be­cause of the devel­op­ment of graph­ics user in­ter­face (GUI), which made it eas­ier for ev­ery­one to op­er­ate a com­puter. GUI was in­vented at Palo Alto Re­search Cen­tre (PARC) in Cal­i­for­nia. But Xerox, which has been one of the pi­o­neers in pho­to­copier tech­nol­ogy, did not bother to har­ness the power of GUI. Two new firms, Ap­ple and Mi­crosoft, se­cured and har­nessed this soft­ware tech­nol­ogy to de­velop easy-touse per­sonal com­puter Op­er­at­ing Sys­tems (OS). Though it de­vel­oped OS, Xerox missed the OS busi­ness bus. Eth­er­net, one of the base tech­nolo­gies for in­ter­net and peerto-peer com­mu­ni­ca­tion be­tween com­put­ers was de­vel­oped at PARC at Xerox. But the Xerox man­age­ment did not har­ness this tech­nol­ogy ei­ther. Com­pa­nies such as Cisco, Sun Mi­crosys­tems, and Nor­tel went on to be­come gi­ants in net­work­ing tech­nol­ogy. Xerox, though at the fore­front of this tech­nol­ogy, again

It is im­por­tant to un­der­stand why firms that failed did not de­velop or de­ploy re­sources and ca­pa­bil­i­ties at all (or in time) to mit­i­gate the im­pend­ing cri­sis.

missed the bus. The Xerox team at PARC had also in­vented the ‘mouse’, the ubiq­ui­tous de­vice that helps an in­di­vid­ual in­ter­act with PCs or such other de­vices. Xerox again did not pur­sue this busi­ness line ei­ther, which a firm from Switzer­land, Log­itech, did. The ques­tion is why Xerox be­came blind to these three tech­nol­ogy streams that could have helped them rule the en­tire PC and as­so­ci­ated in­dus­try (Isaac­son, 2014). Why did they choose to re­main just a pho­to­copier man­u­fac­turer?

Mo­torola was one of the tech­nol­ogy lead­ers in mo­bile telecom­mu­ni­ca­tion (Finkel­stein, 2004). The first voice from earth to moon and back was sent through a Mo­torola transpon­der. The first set of por­ta­ble mo­bile hand-held de­vices were de­signed and man­u­fac­tured by them. In the 1990s, the com­pany had a mar­ket share of about 95 per­cent world­wide in the mo­bile hand­set in­dus­try but by the year 2012, it stood at just around 8 per­cent. They lost close to 85 per­cent mar­ket share in one-and-a-half decades. It is im­por­tant to un­der­stand why Mo­torola lost the mar­ket lead­er­ship de­spite be­ing the tech­nol­ogy leader and why a firm from Fin­land, which used to cut trees in forests, by the name of Nokia, be­came one of the largest hand­set man­u­fac­tur­ers by the mid-2000s. Why could not the Mo­torola man­age­ment un­der­stand the power and po­tency of the growth mar­ket of emerg­ing economies like In­dia

Or­ga­ni­za­tions are in­deed run by peo­ple who, with their or­ga­ni­za­tional cul­ture (em­bed­ded with pol­i­tics), de­cide or­ga­ni­za­tional strat­egy.

and China, which Nokia, Sam­sung, and LG did? Why was the man­age­ment locked into fo­cus­ing just on the mar­ket of the de­vel­oped world, es­pe­cially the US? When Nokia set up the world’s largest hand­set man­u­fac­tur­ing plant in Sripe­rum­budur in south­ern In­dia, Mo­torola was far and away. Why were they obliv­i­ous to the man­u­fac­tur­ing po­ten­tial of emerg­ing economies?

Fi­nally, the case of Nokia, the star amongst hand­set man­u­fac­tur­ers like South Korean gi­ants Sam­sung and LG. Nokia also lost its high seat by the end of the decade of 2010s (An­der­s­son, 2011). Again, it is im­por­tant to seek an­swer to the ques­tion why the Nokia man­age­ment was not able to com­pre­hend the threat of smart­phones and the mo­bile OS-driven com­pe­ti­tion led by Google (An­droid) and Ap­ple. Why the Sym­bian ac­qui­si­tion by Nokia, a right step in­deed, was a tad too late and mild?

po­lit­i­cal per­spec­tive

To com­pre­hend such cases, an or­ga­ni­za­tional po­lit­i­cal per­spec­tive an­chored with the lead­er­ship power base per­spec­tive (Nort­house 2018) has been adopted. Ex­plain­ing the fail­ure of these four com­pa­nies through only one per­spec­tive is not very com­pre­hen­sive, as other rea­sons would be co­ex­ist­ing with the or­ga­ni­za­tional po­lit­i­cal an­gle. Or­ga­ni­za­tions are in­deed run by peo­ple who, with their or­ga­ni­za­tional cul­ture (em­bed­ded with pol­i­tics), de­cide or­ga­ni­za­tional strat­egy. As adage goes—cul­ture eats strat­egy for break­fast (Teas­dale, 2002). Let us con­sider an or­ga­ni­za­tion like a pyra­mid (re­fer to ex­hibit 01). At the base there a large num­ber of em­ploy­ees and as we move to­wards the top their num­bers re­duce. The high­est num­ber of em­ploy­ees—as work­ers, sales peo­ple—and such oth­ers, are at the base. The mid­dle level has fewer em­ploy­ees— mostly man­agers. The next level com­prises select se­nior man­age­ment ex­ec­u­tives and at the top there is only a sin­gle per­son, usu­ally the CEO.

The bot­tom of any or­ga­ni­za­tion, gen­er­ally, in­cludes peo­ple who have a wide va­ri­ety of views and per­spec­tives. Con­sider this metaphor. If the col­ors such as red, yel­low, or­ange, blue, white, pink, vi­o­let, green, and oth­ers rep­re­sent a way of think­ing, then at the base one would come across em­ploy­ees with dif­fer­ent-coloured think­ing frames. This is be­cause they come from dif­fer­ent fam­ily, aca­demic and geo­graph­i­cal back­grounds. A ma­jor­ity are fresh­ers and hence do not carry much or­ga­ni­za­tional psy­cho­log­i­cal bag­gage. Once they join, they are slowly ex­posed to the or­ga­ni­za­tional so­cial­iza­tion process (both for­mal and in­for­mal) (Van Maa­nen & Schein, 1977). New em­ploy­ees be­come aware of the de­sired or­ga­ni­za­tional be­hav­ior

New em­ploy­ees learn about the cul­ture from the sto­ries they hear about— be­hav­iors that are cel­e­brated and those that are frowned upon.

prac­tices. A new re­cruit, upon join­ing Sam­sung Elec­tron­ics in South Ko­rea would soon un­der­stand that the work cul­ture is Mon­day-Tues­day-Wed­nes­day-Thurs­day-Fri­dayFri­day-Fri­day and then again Mon­day…Fri­day-Fri­dayFri­day (Siegel & Chang, 2005). New em­ploy­ees learn about the cul­ture from the sto­ries they hear about—be­hav­iors that are cel­e­brated and those that are frowned upon. Given this, em­ploy­ees who fall within the blue, or­ange, green, and white color frames would find it dif­fi­cult to live in an or­ga­ni­za­tion filled with red thinkers. So they would ei­ther change to red or would leave. One must re­mem­ber that peo­ple join or­ga­ni­za­tions but leave man­agers (read red­think­ing peo­ple rid­ing over oth­ers).

Why does one color of think­ing dom­i­nate an or­ga­ni­za­tion? Be­cause in each layer of the or­ga­ni­za­tional pyra­mid, man­agers draw their power from one of the fol­low­ing sources: knowl­edge or ex­per­tise, po­si­tional or hi­er­ar­chal, and ref­er­ent power. For ex­am­ple, a man­ager at the top has higher po­si­tional power com­pared to her ju­niors. Thus, she com­mands more ju­ris­dic­tion on de­ci­sion-mak­ing bud­get, or­ga­ni­za­tional re­source al­lo­ca­tion, and oth­ers. She most prob­a­bly has been pro­moted in the hi­er­ar­chy be­cause of her ex­per­tise or knowl­edge power ac­cu­mu­lated over the years on a par­tic­u­lar busi­ness func­tion. Ref­er­ent power comes into play be­cause a man­ager knows some­one in­flu­en­tial. Ideally, ex­per­tise power should be cho­sen over po­si­tional or ref­er­ent power.

How­ever, in case of a catch-22 sit­u­a­tion, like the emer­gence of a new busi­ness line such as dig­i­tal cam­era, GUI or Eth­er­net, the top and mid­dle man­age­ment feel threat­ened in all the three di­men­sions of power. If the dig­i­tal cam­era busi­ness or the GUI di­vi­sion be­come suc­cess­ful (in terms of con­tri­bu­tion to profit and sales to over­all busi­ness) for Ko­dak or Xerox, then over the years the man­u­fac­tur­ing and sales man­agers in the ana­log cam­era or the pho­to­copy di­vi­sion would lose their po­si­tion to the new stream of man­agers. Ad­vent of new tech­nol­ogy makes peo­ple lose im­por­tance—the ex­per­tise they have built painfully over the years be­comes re­dun­dant and learn­ing new skills is dif­fi­cult for most. Change is dif­fi­cult for most man­agers to mi­grate and then har­ness it for growth. Thus, these man­agers de­fend their turf to the end. They con­tinue to man­u­fac­ture ana­log cam­eras, pho­to­copy­ing ma­chines, low-end phones, or fo­cus on sales only in the known mar­kets. They rec­og­nize the im­por­tance of new tech­nolo­gies, but they do not act. They still fol­low dated tech­nol­ogy. It is im­por­tant to note that as per the dic­tate of bounded ra­tio­nal­ity (Si­mon, 1991) and bounded re­li­a­bil­ity (Kano & Ver­beke, 2015) man­agers work on lim­ited in­for­ma­tion cou­pled with lim­ited knowl­edge of the emer­gent re­al­ity. They are mostly un­cer­tain about the un­fold­ing pos­si­bil­i­ties and reper­cus­sions of fu­ture busi­ness ac­tion. Given this state, man­agers find com­fort in re­main­ing an­chored to the con­fines of ex­tant tech­nolo­gies de­ployed by the firm.

A firm de­vel­ops a sin­gle color—say red—and not any other color be­cause hu­mans dis­play bounded or lim­ited ra­tio­nal­ity de­spite be­ing ra­tio­nal. And be­yond be­ing ra­tio­nal, man­agers are po­lit­i­cal be­ings too, and po­lit­i­cal think­ing per­sists (cul­ture de­ter­min­ing strat­egy and not the other way around). Man­agers think more about main­tain­ing re­la­tion­ships than about pure play eco­nomic gain for firms. Man­agers, gen­er­ally, pri­or­i­tize main­tain­ing good re­la­tion­ship with firstly se­niors, then with peers, and fi­nally with sub­or­di­nates (ex­hibit 02). Fi­nally, eco­nomic gain of firm gets right of way! Thus, in a red or­ga­ni­za­tion, all em­ploy­ees who are red-think­ing get sup­port from the top. A red man­ager from the top pulls up a red man­ager from the rank be­low and this goes on till the bot­tom­most layer. All the other col­ors ei­ther need to meta­mor­phose to red or leave. Thus, the red CEO gets a red Board; her top man­age­ment team too is red think­ing. Red top

Change is dif­fi­cult for most man­agers to mi­grate and then har­ness it for growth. Thus, these man­agers de­fend their turf to the end.

man­age­ment get filled with red se­nior man­agers, who choose red mid­dle man­agers and so on. Space for the man­agers (whose think­ing frames are not red) end at ju­nior man­age­ment level. Or­ga­ni­za­tions are thus prac­ti­cally not a mul­ti­tude of com­pet­ing ideas, opin­ions, and per­spec­tives but rather a mono­lith dom­i­nated by one color (ex­hibit 03). Nokia, Mo­torola, and Ko­dak were not thou­sands of em­ploy­ees with thou­sands of flow­ers bloom­ing but one flower bloom­ing. The essence is that the dom­i­nant color ide­ol­ogy does com­pre­hend the date of ex­piry of their world of view and prac­tice. How­ever, they are re­luc­tant to let go of power and pre­vent an­other com­pet­ing color bloom though it might be more eco­nom­i­cally vi­able and have higher fu­ture po­tency. The loss of power is a one-way ticket for most red-think­ing man­agers. Sur­vival is dif­fi­cult and hence the nat­u­ral in­cli­na­tion to pro­tect the ex­tant turf.

The loss of power is a one-way ticket for most red think­ing man­agers. Sur­vival is dif­fi­cult and hence the nat­u­ral in­cli­na­tion to pro­tect the ex­tant turf.

a pos­i­tive nar­ra­tive

3M has over the years demon­strated an amaz­ing ap­petite for in­no­va­tion (Von Hip­pel, Thomke & Son­nack, 1999). They started their jour­ney as a min­ing en­tity, and then grad­u­ated to prod­ucts like sand pa­per by mas­ter­ing two ca­pa­bil­i­ties, namely ad­he­sives and thin films. 3M, based on these two ca­pa­bil­i­ties, de­vel­oped high­way mark­ers, cello tape, elec­tri­cal tapes, au­dio-video films, floppy disks and bi­o­log­i­cal tapes for post-surgery re­cov­ery. Or­ga­ni­za­tions like 3M have, over the years, dealt with suc­cess as they have an agenda that ‘x’ per­cent (say 40 per­cent) of busi­ness profit or rev­enue has to come from the last ‘y’ years (say four years) of in­no­va­tion (read new color as every rad­i­cal in­no­va­tion). The com­pany gives em­ploy­ees or­ga­ni­za­tional time to ex­per­i­ment and in­no­vate, and funds em­ployee-led ex­per­i­ments. 3M’s top man­age­ment team vets em­ployee projects for fu­ture busi­ness en­deav­our. At 3M, breed­ing new ex­per­i­ments and in­no­va­tion has be­come a po­lit­i­cally ac­cept­able nar­ra­tive. But or­ga­ni­za­tions like this are few and far be­tween, across in­dus­tries. For or­ga­ni­za­tional de­sign and or­ga­ni­za­tional devel­op­ment prac­ti­tion­ers, it is im­por­tant that if not thou­sand, at least some flow­ers (with max­i­mum eco­nomic po­tency) are al­lowed to bloom. This is a quest chal­leng­ing to master.

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