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Looking at Failure

By Michael K. Tanner, Managing Director, The Chasm Group, LLC

Wise men learn more from fools than fools from the wise.

Experience is a jewel, and it had need be so, for it is often purchased at an infinite rate.

Let’s face it. In the technology sector we worship success. With the Horatio Alger cookbook of striving and succeeding as our inspiration, we spend our waking hours dreaming up new technologies, products and businesses that will change the world and the way we live and work. We compete fiercely and never give up. Our business plans uniformly forecast an “S-curve” growth trajectory that any new venture investor will tell you is so typical that it could almost be a clip-art model. We assume that new technology innovation will be so compelling that (after a few “seed units” of course) the world will basically beat a path to our door. We just expect that with the right plan, the right resource and the right team, we will be fantastically successful.

Wouldn’t life be so much simpler if business really worked that way?

Our top business leaders publish their history and go on the speaking circuit offering up the secret of their success. Our gurus present success models to emulate. Our leaders and investors tell us their stories of what worked for them, and how to manage based on their own experiences. And amazingly, after all of this motivation, emulation, modeling, mentoring and hard work, over half of new businesses still fail! While I have no statistics at hand, in established businesses my guess is that well over half of new product introductions also fail to meet expectations.

So let’s hold on to those under-water stock options for a moment and consider something. Could it be that we’re looking in the wrong direction for our learning? Perhaps we should look at failure for our learning while we seek success stories as our inspiration? Might we be afraid to look failure in the eye because it reminds us of just how probable such an outcome is? Perhaps we’re just so mentally tuned to “positive thinking” that we just can not take time out to envision a failure scenario. Or, we may fear ourselves turning into that person we all know who is always seeing the downside, never envisioning success and constantly reminding us why success is improbable. (I’m sure you know him/her).

I’d like to make the heretical suggestion that we spend just a little more time thinking about failure. Not our own of course, but rather why other businesses and products have failed. I, for one, would like to avoid the traps. What didn’t work in our past experiences? What great plans didn’t achieve results? and why? How can we avoid such perils going forward? What failures have the successful people we know had in their previous experience? Fortunately, trying to find failure examples in the current market condition should not be difficult. The papers are filled with quite a “target-rich environment” to work with. I think it’s time we take advantage of this.

To start your thinking about failure, I’d like to suggest a process. There are at least nine operational activities that require alignment for any new successful business or product launch to occur. At each step below there are infinite modes of failure. But as you think through your own experiences, try and be specific and honest with yourself about not just what worked, but what didn’t work. Here are the 9 activities:

1. Fact-finding –taking the time and effort to base planning on real data
2. Insight – applying out-of-the-box thinking to understand what the facts are telling us
3. Strategy – defining the high level ‘filter’ that business decisions will be made to
4. Organization – making sure the structure is suitable to the strategy (and visa-versa)
5. Resource – identifying and assembling both the right quantity and quality
6. Alignment – creating deep understanding in the organization about expectations, a uniform culture and norms
7. Accountability – putting roles and responsibilities in place and identifying owners
8. Measurement – specific, measure-able, realistic and time-bound goals
9. Management – putting systems and processes in place and providing oversight

Trying to identify the most typical failure modes throughout these nine steps is a novel rather than an article. But as a consultant that sees many new businesses I see two failure modes that come up so often, and which are so egregious that they bear special mention right away. These have little to do with a plan or process, but instead are rooted in human behavioral issues that almost guarantee implementation failure. When they arise, they tend to create a sort of “collective hallucination” amongst even the best of people. Because of this, the executive team and board are often the very last to recognize the problem. Resolution is kept at bay until drastic action is inevitably required.

Matching Organizational Structure to Strategy ( from #3 to #4)

This situation comes up because organization structures are fixed according to the old strategy while new product lines or businesses that need different organizational models get injected into the mix. Typical examples include a channels company launching a new solutions business; a hardware company introducing a new software division; the professional services firm introducing a new software product line; a consumer or packaged software business moving into enterprise markets, or the company that acquires a new business with a slightly different strategy.

Unless the organization structure is appropriately defined to support the required change, what happens is something like the following: First, the ‘antibodies’ in the current organization will start to resist the new changes. This is subtle ? the executive team is generally the last to know when it’s happening. The new strategy requires behavior that is different than the norm and is just too radical for the existing organization to support. The old organization structure reinforces the old strategy, and the organization continues to focus on the status quo behavior. When resources or control of resources are threatened, teams actively lobby against the new plan. At best, the majority who are well-meaning are agnostic about the new behaviors required. Performance suffers while a sort of tacit agreement amongst the players to resist change ensues. At worst, existing teams pro actively undermine success while giving lip service to support of the new strategy.

The good news is that while this condition is bad, it’s not fatal. Strategy changes and business expansion does not get executed particularly well, but if competitors are unresponsive the sub-optimal condition can go on indefinitely. Of course, if competitors know how to take advantage of these issues the company will slowly become uncompetitive over time. The worst case scenario is often just retreating back into installed-base marketing, eventual acquisition or buy-out.


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