How self-destructive habits of good companies can lead to failure


Why should some companies that were good, become bad? What really caused the failure? Dr. Jagdish N. Sheth, an internationally famous management expert and author, has some answers. In this article, some of his quotes are taken and discussed in the context of some Indian companies.

Introduction

Dr. Jagdish Sheth is one of India's foremost Indian experts on Management. He teaches around the world and has written world-class books. His ideas get debated all over. One such had appeared in the excellent Indian Magazine called Smart Manager, (publication of the Smart Media Manager Pvt. Limited, Mumbai) in the issue dated June-July 20017, Vol.6, Issue 4, pages 63-72. (this is a bi-monthly management publication).

For purposes of space, only some quotes are taken. According to Dr. Sheth, the seven self-destructive habits of good companies are i) denial cocoon of myth, ritual, and orthodoxy); ii) arrogance (pride before the fall iii) Complacency (success breeds success) iv) Competency dependence ( curse of incumbency) v) competitive myopia ( nearsighted view of competition) vi) volume obsession (rising cost and failing margins) and vii) territorial impulse (culture conflicts and turf wars)

Now, let us some of the quotes for each self-destructive habit. The article also has some solutions from Dr. Sheth. We will also focus on them and identify some Indian examples.

Denial

"Leaders often are so busy managing the business that they forget to look around them leading to three types of denial: the denial of emerging technologies; the denial of changing customer tastes; and the denial of new global environment".

This is indeed true in the Indian context. Let us take one excellent company called HMT. This public sector giant was the market leader for a very long time until Titan Watches ( a joint venture of the Govt of Tamil Nadu and the Tatas) set up a big unit for the manufacture of what are called Quartz watches. This was a sea change and it was a totally different concept, as it was a new technology at that time. Today, the mechanically changeable watches ( where one changes the time in his or her watch through human intervention) is gone. It is quartz watches that will continue to rule the market for centuries. This was not noticed by the giant HMT, which was in a state of denial. It never ever understood customer tastes. Today, companies that do not export their goods are not worth being considered good companies.

Arrogance

Let us take the next self-destructive habit of arrogance. "Like several of the other self-destructive habits, arrogance typically arises from exceptional achievement. And the arrogance is fostered when the media starts exaggerating a company's accomplishments, and its leaders start believing their own press clippings".

The aforesaid quote is particularly true of Bajaj Auto. The then big boss, Rahul Bajaj, dismissed the shift towards motorcycles as a temporary phenomenon. The then competitor, called Hero Honda ( the foreign company called Honda has broken up and is now on its own) concentrated on a big range of motorcycles and it took the world by storm. Somehow or the other, arrogance was associated with what Rahul Bajaj said. The consequence of that kind of arrogance is even today felt by the company, as it is still number two in the market and the Indian company called Hero Motorcorp is now the big boss of the ever-increasing sales of motorcycles. The "Hamara Bajaj" scooters took a hit of the tallest order. When Bajaj switched over to motorcycles, it was already late.

Complacency

"Complacency is the sense of security that derives from the belief that past success will continue indefinitely. Complacency rests on three pillars: past success, the belief that the future is predictable, and that scale will protect you against setbacks".

This is particularly true of so many companies. Larsen and Toubro was a huge success in cement. A.M. Naik, the insider veteran was the new CEO. He argued that this complacency to be present in so many businesses is wrong. He somehow made the Board agree to sell the cement business to the Aditya Birla group. The rest, as they say, is history. L&T has conquered new heights as an international organization. It is now so competitive that it can take on any giant, anywhere in the world. Behind the stupendous success is the building of formidable core competencies in each line of business.

SPIC, the major fertilizer company was never able to come out of its shell when the competition was very severe. It was a very successful company in the license-raj, permit raj. It never ever woke up to global competition. It was clearly a victim of complacency. On the contrary, the cement companies from Tamil Nadu, India Cements and Madras Cements, have grown from strength to strength. They have always invested in advanced technology. They were never complacent and even today, are able to withstand both domestic and foreign competition.

However, a traditional book store by name Higginbothams, from the Simpson group of companies can still be called a victim of complacency. When the new-wave competitors like Landmark emerged, they were caught napping. It still is a good brand name but has somehow lost out to the competition. There are other examples from the same Chennai, where complacency has not been such a big problem. For example, Spencers Plaza, which is now under the control of the RPG group, is still able to attract a huge crowd and its interiors are very good. It is situated bang on Mount Road and is an iconic destination. Even the likes of the Phoenix Mall, at Velacheri, have not exactly dented the popularity or business of Spenser's plaza.

The TVS group can be found guilty of only one area where they never built a big name for themselves. Their complacency lead to this sad state of affairs. They never ventured into IT. There were too many vacant spaces in the IT ecosystem and based on their huge managerial expertise in the auto-component industry, they could have easily become a world power if they had milked their expertise to grow fresh new core competencies in IT. They just did not do it and they failed miserably. They do not have a single major company in IT. A fact that is unknown to the entire world is that the TVS group has several autonomous units run by cousin brothers. Though they do sometimes talk to each other, except for the cross-holdings, there is nothing common between them. This is one major reason why they have never been united in one single Corporate initiative. Of course, they are globally competitive excellent companies, all alone.

Competency dependence

"Most companies depend on a core competency for success but your "competency dependence" becomes a self-destructive habit when it limits your vision and blinds you to other opportunities. What do you do when your core competency becomes obsolete or uncompetitive? Or somebody else does a better job than you and your customers desert you?"

We had just discussed the example of TVS. Competency dependence is also sort of a big self-destructive habit. Except for one company called TVS Motors, none of the other companies are in the direct-customer interface business. For example, a brake is a brake. The company called Brakes India Private Limited of the TVS group can never get to see the end customer. Maruti Suzuki is, for example, responsible for the final quality. It may pull up Brakes India but the OEM is the finally responsible company, as far as the end customer is concerned.

Not only did it miss out in the IT industry. The entire group could have perhaps made it big in some service business, much similar to the famous NBFC company called Sundaram Finance. Today, this company is a pride of the TVS group. However, somehow or the other, it did not identify many other opportunities.

Similar is the case with other big groups. The Anil Ambani group, that stands hugely discredited with such a bad name today, could have become a big force in Power. It never was and possibly will never be. Reason? Reckless diversification. It wanted a finger in every pie. It never ever was able to even utilize its core competencies. The Escorts group had infighting and its complacency also lead to its decline.

Competitive myopia

"You suffer from 'competitive myopia' when you make the mistake of defining your competition too narrowly. GM, Ford, and Chrysler were so busy competing against each other that they failed to notice the Japanese invasion of the Americal automobile market. At one point or the other, virtually every company succumbs to competitive myopia" (page 67)

Let us turn to what the learned author has to say on the ways to break competitive myopia, as far as competitive myopia is concerned. The solutions offered are: redefine competition, broaden the scope, consolidate industry, counter-attack, and refocus. (page 71). When the professionally managed Marico Industries was faced with a new competitor from the giant called Hindustan Lever ( now Hindustan Unilever), in the form of a new brand of coconut oil called "Nihar", Marico Industries did not buckle under pressure. It increased its advertisement expenditure and launched a counter-attack. Nihar was also no match to the already well-entrenched Parachute oil in the mind of the customer. HUL finally had to sell this brand to the same Marico Industries, which just junked it. Today, Parachute is an undisputed market leader, though, in the South of India, there are smaller brands with a small niche like the VVD Coconut oil.

Volume Obsession

"Perhaps a more business-like term for this self-destructive habit would be cost efficiency", that is, you are spending too much money to make money. In a non-monopoly situation, in which most of us are, you fall into the bad habit of volume obsession when prices crash due to intense competition or excess industry capacity but costs remain the same"

For example, the wisest of the competitors in the biscuit industry, like ITC, which has now built a name for itself, through its brand called Sunfeast, is not so much into advertising, these days. Its days of high decibel advertising is over. On the contrary, since the product is very good, there are customers who buy only these products. And it has expanded its range very well. For example, the snack brand called Bingo.

It had used a little humor to build and grab attention. But when the brand has become formidable, it has not advertised on television in a big way. Its advertisements are through banners and in-stores limited advertising. This is deliberate to cut down costs.

Territorial Obsession

Every single company cannot aspire to become a national brand, overnight. It does take time. The learned author talks about corporate ivory tower, with its leader on the top floor, far removed from ground realities. It leads to "confusion: the left does not know what the right hand is doing". (Page 71).

Metal Box was a very successful company, once upon a time. It was hit by labor trouble. Somehow or the other, the big boss at the Corporate Office was sold on the idea of "getting very tough". This never works. The bloddy industrial relations at Suzuki Limited, where the production of cars under the Maruti brand name slowed down, will testify to the futility of a very confrontational approach towards labor. Result? The company was itself closed. Metal Box entered Corporate Indian history as a classic case of failure.

The author advocated cross-functional teams. One such cross functional team, which had a superb level of empowerment and was very young, was involved in the concept to design to deliver to the market of a product called "Scorpio". Everything was kept a secret. When the SUV made a big splash, from the Mahindra and Mahindra table, it was a roaring success. A huge risk of rupees six hundred crores, was never a wasteful exercise.

Conclusion

There have been many success stories and many failures in India. Only a few have been discussed above. When are there are some other articles with some reference to the core ideas discussed in this articke, the appropriate links will be given for further discussion.


Comments

Author: Umesh25 Mar 2019 Member Level: Diamond   Points : 4

A very nice article illustrating the rise or fall of companies in the business environment. Today the technology is changing very fast and new innovations are coming up and quickly replacing the old established things which are creating a very tough environment for the corporates and companies to stay alive in this cut-throat market. History is witness to the obsolescence of common items like desktop radio, audio/video tapes, and discs, photographic rolls, box TVs, various household gadgets, electronic gadgets, etc.

Take the example of Reliance Industries. They were the leaders in the business of polyester yarn (based on industrial polymers) and still have a significant place there. But they know that the market of polymers will be soon stagnating and will have reduced margins and profits. They have very successfully ventured out in the mobile phone area and today they have created a big place for themselves by having a big consumer base for their 4G data services. So companies which can quickly venture into the new areas can only survive the technological obsolescence.



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