Destroyed by excellence

There was a bit of interest in the blog piece that I did on responding to change so I thought I would follow this up with a quick discussion of a really good model for understanding inertia and how resistance to innovation develops.

One of my favorite research studies on excellence and inertia is by Prof. Dorothy Leonard-Barton, who is one of those rare business academics able to do rigorous research and also translate it into useful information for business leaders. Usually we get the situation where the research is unintelligible or the information for business leaders is based upon bad research. As Tim has said in a previous post, there is a real need for business academics to do a better job with filtering business ideas by testing them with good research.

In a research study published in the Strategic Management Journal in 1992, Prof. Leonard-Barton did twenty case studies of new product development within five firms that she later translated into the bestselling book, Wellsprings of Knowledge. Through interviews and observation, she developed a model of core capabilities that shows four interlocking dimensions.

Firms that are really good at doing something (logistics at Wal Mart, for example) will have a combination of employee knowledge and skill (obvious); physical technical systems such as machinery, databases and software; managerial systems such as education, awards and incentives (less obvious); and values and norms such as rituals, status and beliefs, which acts as a powerful knowledge filtering system (often overlooked). Successful innovations in areas where these dimensions are overlapping will reinforce the connections and make further innovations in that particular competency more likely.

The really interesting finding from Leonard-Barton’s work is that the model for inertia is exactly the same as the model for core competencies. A dominance of a particular skill set tends to marginalize people without skills in that area, resulting in one type of legitimate thinking in the business. People become promoted and rewarded for their skills in the dominant technical systems and the cultural effects of status and beliefs effectively screen information from the outside world that might challenge the status quo. This is exactly what I saw in the case study that I did with the Tioxide company and I wonder if I went into News Limited or Fairfax Ltd, would I observe the same factors?

It’s a powerful model because it shows how businesses are most at risk when they are most successful. By using Leonard-Barton’s framework, managers should be able to detect the early warning signs of overconfidence and lock-in to a dominant technology or business model.

So, success sows the seeds of failure but where’s the supporting evidence? Eric Beinhocker quotes a US study which showed that in a sample of 6772 firms from 1974-1997 only 5% of them achieved sustained outperformance for a period of more than 10 years and only 32 of these firms (0.5%) were able to outperform their peers over a twenty year period. The challenge to keep innovating and changing is immense, and most firms won’t succeed. So much for “Built to Last” or “Good to Great”. The cold, hard data tells us a story more like “Condemned to Being Average” but I won’t even try to sell a book with that title.

Finally, here is a positive thought. Failure and disruption presents the best chance to build new core competencies. When we fail, we should really see it as an opportunity to build the next phase for growth.

Perhaps the great evolutionary economist Bob Dylan summed up this paradox best by saying, “There’s no success like failure, and failure’s no success at all”. I wonder if His Bobness has read Beinhocker?

Please note: I reserve the right to delete comments that are offensive or off-topic.

9 thoughts on “Destroyed by excellence

  1. Tim,

    I really like this, especially the point about core competencies becoming liabilities.

    One interesting point is that Jim Collins, the author of “Built to Last” and “Good to Great” made the same argument about success leading to failure in his newest book, “How the Mighty Fall.”

    I also made the point in one of my posts, which was based on Collins’ book and my own hard experience in Eastern Europe.

    You can see it here:

    – Greg

    P.S. I’ve just bookmarked your blog:-)

  2. Thanks for stopping by Greg! This post is actually by my collaborator John Steen & I agree with you that it’s excellent. I’ll definitely check out the post of yours that you mention.

  3. Thanks for the great post, John.

    Isn’t this issue pretty much related to what I have just shared with Tim: – the characteristics of idea adoption and spread within companies?

    My conclusion: The impact of ‘inertia’ is twofold – firstly, the generation of more radical ideas, potentially leading to disruptive innovations, is inhibited. Secondly, the spread of ideas that have been decided to pursue is hindered – affecting efficiency in the idea execution and therefore increasing time-to-money.


  4. Thanks Ralph- I think you are right. The failure of ideas to spread is definitely an outcome of organizational inertia. Leonard-Barton has this really nice term called ‘core-rigidity’, which is the flipside of ‘core-competency’. When a core rigidity forms, getting a new idea to spread within the business would be next to impossible.

  5. Hi,

    Interesting post.
    This topic would be great to crossreference with Michael Raynor’s “Strategy Paradox”.
    Companies can outperform their peers only if they commit to an extreme, inflexible position (high risk = high reward), and this would explain the razor sharp focus on “being really good at doing something”.
    As time progresses, and the competition tries out new ways to compete using new technologies or business models, your competitive advantage may be eroded by sticking to only one extreme position.
    Managers can avoid being surpased by the competition by creating options on new technologies or business models.


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