Active Inertia: Ever-Relevant Insights for Modern Leaders

Active inertia (term used by author Donald Sull) describes an organization's tendency to stick to a set of established behaviours, even in the face of significant environmental changes. This often leads to a misguided acceleration of familiar activities, deepening problems rather than solving them. Understanding its sources and symptoms is crucial as executives might assume action is the solution, but recognizing that action itself can be problematic helps gain clarity on what needs to change to avoid the pitfalls faced by failed leaders.

Firestone Tire & Rubber, once a thriving giant, faced a drastic challenge in the 1970s with the introduction of radial tires. Despite recognizing the impact of this change, Firestone's quick response by investing heavily in radial tire production didn't address critical shifts in manufacturing processes, leading to costly recalls and a decline in market share. The company's adherence to outdated methods amidst changing demands, coupled with an overestimation of tire demand, resulted in financial struggles, hostile takeovers, and eventual acquisition by Bridgestone in 1988.

Laura Ashley, renowned for its traditional British style, initially flourished in the apparel industry by embodying classic designs. However, as fashion trends evolved, Laura Ashley's commitment to outdated designs and expensive in-house manufacturing led to declining appeal among consumers favouring more practical attire. Despite recognizing the challenges and implementing restructuring plans under several new CEOs, the company failed to redefine its strategy or update its traditional values to align with the changing market landscape. Hindered by active inertia, Laura Ashley faced a continuous decline, marked by a revolving door of CEOs and strategic uncertainties, ultimately leading to its persistent downfall and even seeking guidance from outside figures like Pat Robertson.

Success often leads to rigid adherence to established methods, resulting in a failure to adapt to market changes, marking the shift from a successful formula to eventual failure. In particular, below four things happen:

Strategic frames become blinders.

Strategic frames shape perception defines how managers view the business, competition, and opportunities, aiding comprehension of complex data within established models.

While helpful, these frames can narrow vision, causing managers to miss new opportunities or emerging trends and leading to oversight of potential threats.

Xerox's fixation on traditional competitors prevented it from recognizing emerging threats like Canon and Ricoh, resulting in missed opportunities despite pioneering technological advancements for the personal computer revolution.

Processes harden into routines.

Processes become entrenched routines: Initially, companies experiment with various approaches, but once they find an efficient method, they tend to fixate on it. This fixation saves time and boosts productivity while ensuring operational predictability in complex organizations.

Established processes can transform into rigid routines, hindering employees from considering new approaches or innovations. These routines become the default way of operating, obstructing the exploration of alternatives.

Firestone struggled with manufacturing issues due to entrenched processes that resisted adapting to radial technology. Similarly, McDonald's, with its overly standardized operations in 1990’s (with 750 pages of operations manual), struggled to respond to evolving consumer preferences, slowing down innovation and menu changes despite market shifts. Competitors such as Burger King and Taco Bell were capitalizing on the shift in taste by launching new menu items.

Relationships become shackles.

Companies need strong connections with employees, customers, suppliers, and investors. However, these bonds can restrict flexibility when conditions change.

Maintaining existing relationships might hinder a company's ability to innovate or adapt to new markets.

Restrictive relationship dynamics: executives from companies like Laura and Ashley and Firestone, had successful relationships with stakeholders, but these relationships limited adaptability when conditions changed.

Kirin Brewery's reluctance to change its product offerings allowed Asahi Breweries to surpass it in the industry. Apple Computer's creative culture clashed with cost-cutting needs, hindering its adaptability. Banc One's success with local managers turned into a disadvantage as industry changes occurred.

Dell's direct sales approach propelled its success, while competitors like Hewlett-Packard and IBM hesitated to follow, fearing backlash from resellers.

Airlines such as Lufthansa, British Airways, and KLM hesitated to promote direct sales for fear of upsetting travel agents, hindering their ability to innovate.

Values harden into dogmas.

Values become strict rules: Initially, company values unite employees and shape their identity. However, as companies evolve, these values can transform into inflexible regulations, losing their inspiring force and leading to resistance against change.

Polaroid, known for pioneering instant photography, saw its dedication to R&D transform into neglect for marketing and finance. Overemphasis on technology led to sales stagnation and a significant decline in value.

Royal Dutch/Shell’s aversion to centralized control led to a decentralized structure. While this helped seize global growth, during a downturn, the decentralized belief hindered quick cost-cutting and operational adjustments.

In summary, it's crucial for leaders to be aware of active inertia, as seen in Firestone and Laura Ashley's stories. To prevent this, they need to be mindful of tunnel vision, stuck thinking, inflexible routines, rigid relationships, and overly strict values that can hinder a company's ability to change and grow in a constantly changing world.

This article draws inspiration from Harvard Business Review's exploration titled 'Why Good Companies Go Bad' (Author: Donald Sull)