432
n
The success trap (and some ideas how to get out of it)
framed the exact same technological developments as a threat
(e.g., “it will eat into our advertising market share”) didn’t cope
well at all. In light of the threat, they reduced investments in
experimentation, adopted a more authoritarian organization and
management style, and focused more narrowly on their existing
resources and activities. As a result, they basically ended up
copying their physical newspaper onto the web; and that didn’t
work at all. Many of them didn’t survive.
And this effect is omnipresent. How you frame decision-situations
to someone (e.g., your boss) is going to inuence substantially
what option he is going to favor. How the people who work for
you frame a situation while presenting to you is also going to
determine what you will choose. And I guess that may be an
opportunity (or a threat . . .) in and of itself.
In a downturn, manage your revenues, not your
costs
All the subprocesses described in this chapter so far contribute
to the success trap: the process of gradually getting stuck in
what brought you success in the past, but which is currently
causing you trouble. Hence, we know quite a bit, from research
in organization science, about how rms end up in such a trap.
Unfortunately, we know fairly little – hardly anything at all, to be
honest – about what rms can actually do to get out of such a trap.
Since this, obviously and unfortunately, can be quite a relevant
question for some (i.e., if you’re in trouble), let me speculate a
bit about what rms can attempt and do, once they have ended
up in a crisis.
So, here’s a hypothesis. In prosperous times, companies often
fall victim to not being able to resist the many opportunities
for growth that present themselves to them. In isolation, many
initiatives with respect to new products, new markets, or new
customers look good but when pursued in combination they
have a negative effect and hamper growth. Wealthy rms nd all
these options difcult to resist precisely because in isolation they
Business Exposed44
look so good. They have the funds to spare and therefore they are
inclined to do too much of a good thing.
Andrew Grove, former CEO of Intel, understood this well. Intel’s
best-selling product – microprocessors – had endowed them
with much cash to spare. However, he resisted the temptation
to spend it on other initiatives and entering adjacent businesses,
telling his people, “This is all a distraction; focus on job 1 [micro-
processors]”. It made them one of the most successful companies
ever.
However, companies in distress – such as in a downturn – often
do the reverse. In academic research, we call this the “threat-
rigidity” effect. They focus on their core business, shedding all
other things, doing more of what they did before, and which
they consider their strongest points, while trying to reduce their
cost base to weather the storm.
By itself, minimizing one’s cost base is never a bad idea (also in
prosperous times!) but these companies forget one thing: you
have to manage not only your costs but also your revenues. And,
what’s more, the composition of a revenue base in lean times
will have to look different from its composition when times are
good. Where in happy times rms are often seduced to spread
out too much, while they would be better off focusing on job 1,
in meager times rms are often inclined to focus too much, when
diversifying one’s revenue base makes more sense.
So why does spreading one’s revenue base in meager times make
more sense? It is, among other reasons, because no job will be
big enough to sustain the whole rm. What keeps rms aoat is
accessing a variety of smaller pockets of revenues. Hence, rather
than focus on job 1, hoping it will be enough to sustain the
rm, the company’s effort should be aimed at identifying and
creating additional sources of revenue. In the downturn, none of
these additional sources will be big enough by itself. Moreover,
many of these sources would not be attractive in prosperous
times, because the rm would not be able to make them grow.
However, this is not a time of growth, but of survival.
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