Overcome---‘ Inertia that follows success’

Overcome---‘ Inertia that follows success’--- To innovate strategically (Part-I)
A case study on how established companies have overcome the obstacle “inertia that follows success” ---to innovate strategically
Established companies find it difficult to innovate strategically when compared to new companies. Strategic innovation is difficult to achieve and only a small number of firms can claim to be successful strategic innovators. The four chief obstacles to strategic innovation are:
Inertia that follows success
Uncertainty about what to change into
Uncertainty surrounding new strategic positions
The challenges of implementation
Research on strategic innovation by established industries has revealed some tactics to overcome the four obstacles to innovation.
How to overcome the inertia that follows success
A prerequisite for strategic innovation is fundamental questioning of the way a company is doing today. It means actively thinking about the business and perhaps mentally experimenting with a few “whys” and “what ifs”. This is difficult for any company and almost impossible for a successful company.
Successful companies perceive that the way they play the game is the right way because they have profits to prove it. Besides finding it difficult to question their way of doing business, they tend to dismiss alternative ways even when their competitors trying something new. For example, it took Xerox at least twenty years to recognise Canon as a serious threat and respond to the challenge.
Unfortunately, most companies do not question their way of doing business until a crisis hits them. However, there are some strategic innovators who succeed in overcoming the inertia of success.
Hewlett-Packard made rejuvenating transitions in moving from instruments to computers from minicomputer-based technology to microprocessor-based technology and finally from computers to desktop publishing. Motorola went from consumer electronics to semiconductors and now telecommunications. Johnson & Johnson, a consumer product company entered into pharmaceuticals. 3M changed its business from mining to sandpaper to tapes. Microsoft is attempting such a transition by moving into an Internet based world and General Electric is trying to move heavily into services and out of manufacturing. Such examples are however, rare.
The strategic innovators above succeeded in overcoming the inertia of success by identifying two interrelated approaches:
They not only monitored financial health but also strategic health for early warning signals before the crisis came. Strategic health refers to a company’s future that could be different from today (as measured by its financial health). Many companies appear to be very profitable (for example IBM in 1990), only to discover two to three years later that they are facing a crisis. Conversely, many companies that appear to be in financial difficulties (for example, IBM in1994) are ready to embark on a period of growth and profitability. This implies that there is often a difference between a company’s financial and strategic health, and the financial health may not be the predictor of the future.
In 1989, Denis Cassidy the chairman of the Boddington Group plc (this company was a vertically integrated beer producer that owned a brewery, wholesalers and pubs throughout the UK) decided to sell the brewery. This decision was not very well received by several board members as the company was financially doing quite well. When Cassidy examined the business results over time, he realised that something fundamental was happening. For example, consumption of traditional English ale (the traditional lukewarm English ‘ beer’), the company’s mainstream product dropped from 85% to 45% in 1988. This is because of the availability of imported beer, which could be consumed chilled. Therefore, he sold the brewery and diversified into restaurants, homes for the elderly and hotels while retaining pubs. This move resulted in creation of enormous share value.
Creating positive crises. This is the second tactic used by strategic innovators to overcome the company’s’ inertia of success. All the employees should be convinced that the current performance was good but not good enough. Innovators succeeded in selling the challenge to everybody through the following three steps:
First, the company must communicate and explain its objective to everyone in the company.
Second, the company should make the objective more realistic and achievable to motivate everyone.
Third, people must move from rational acceptance of an objective to emotional commitment and for this various tactics are needed such as:
Create a credible enemy for the team.
Create positive and negative incentives to promote the chosen objective.
Allow people to develop the objective themselves and empower them to carry it out. Lead by example.
Keep communicating and reminding people of the objective.
After overcoming ‘Inertia of success’, successful existing companies need to decide into what they need to change. So that their strategic innovation is successful.
Related Reading: Strategic innovation in established companies. Markides, C.; Sloan Management Review, 01/1998.


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