‘Politics’ of failure

November 23, 2018

Kenneth Andrews did seminal work on why firms fail by studying the failure of many great US companies during the 1960s (Andrews, 1971). That decade was pivotal for US firms because till then they got free access to the markets of Western Europe being rebuilt as per the mandate of the Marshal Plan post World War II. Post 1960s, firms in England, Germany, France, the Netherlands, Belgium, and Italy were on the revival path and started recapturing their domestic markets. Post World War II, strengthened by superior management processes and products, Japanese firms targeted the US market. So, US firms faced competition both in the international and domestic markets. Scholars like Andrews were interested in understanding why the US firms failed and did not respond appropriately. Many scholars attributed this to the lack of dedication of pertinent organizational resources and capabilities to cater to the market and business environment requirements (Mahoney & Pandian, 1992). Thus, the proactive nature and intent of firm management to develop and deploy new as well as extant organizational resources and capabilities mattered. Similarly, in India quite a few family-owned business firms perished post liberalization, privatization, and globalization in 1991 (Kedia, Mukherjee & Lahiri, 2006). However, one must note that quite a few business firms also flourished post 1991 not just in the Indian market but also in foreign markets. It is important to understand why firms that failed did not develop or deploy resources and capabilities at all (or in time) to mitigate the impending crisis. The case studies of the decline of Kodak, Xerox, Motorola, and Nokia prove the point.

the negative narratives

Kodak was known for manufacturing best-quality analogue cameras (Lucas Jr, & Goh, 2009). They peaked sales in the late 1980s, clocking maximum sales in terms of units, revenue, and profit. However, Kodak did not respond to the new technology in photography that was being developed in the 1970s and 1980s—digital technology. One must remember that Kodak did develop digital cameras (indicative of the development of specific firm resources and capabilities) but did not commit substantially to make it a successful business. Any young consumer would have agreed that digital photography (cheap, durable, supporting experimentation, and offering better quality) was the future. It is pertinent to seek answer to the question: why did Kodak not respond to digital photography opportunities comprehensively? Why did they continue to stick to analogue photography?

Let us consider the case of Xerox, the mighty photocopier firm (Parikh, 2001). The PC industry flourished since the 1980s because of the development of graphics user interface (GUI), which made it easier for everyone to operate a computer. GUI was invented at Palo Alto Research Centre (PARC) in California. But Xerox, which has been one of the pioneers in photocopier technology, did not bother to harness the power of GUI. Two new firms, Apple and Microsoft, secured and harnessed this software technology to develop easy-to-use personal computer Operating Systems (OS). Though it developed OS, Xerox missed the OS business bus. Ethernet, one of the base technologies for internet and peer-to-peer communication between computers was developed at PARC at Xerox. But the Xerox management did not harness this technology either. Companies such as Cisco, Sun Microsystems, and Nortel went on to become giants in networking technology. Xerox, though at the forefront of this technology, again missed the bus. The Xerox team at PARC had also invented the ‘mouse’, the ubiquitous device that helps an individual interact with PCs or such other devices. Xerox again did not pursue this business line either, which a firm from Switzerland, Logitech, did. The question is why Xerox became blind to these three technology streams that could have helped them rule the entire PC and associated industry (Isaacson, 2014). Why did they choose to remain just a photocopier manufacturer?

Motorola was one of the technology leaders in mobile telecommunication (Finkelstein, 2004). The first voice from earth to moon and back was sent through a Motorola transponder. The first set of portable mobile hand-held devices were designed and manufactured by them. In the 1990s, the company had a market share of about 95 percent worldwide in the mobile handset industry but by the year 2012, it stood at just around 8 percent. They lost close to 85 percent market share in one-and-a-half decades. It is important to understand why Motorola lost the market leadership despite being the technology leader and why a firm from Finland, which used to cut trees in forests, by the name of Nokia, became one of the largest handset manufacturers by the mid-2000s. Why could not the Motorola management understand the power and potency of the growth market of emerging economies like India and China, which Nokia, Samsung, and LG did? Why was the management locked into focusing just on the market of the developed world, especially the US? When Nokia set up the world’s largest handset manufacturing plant in Sriperumbudur in southern India, Motorola was far and away. Why were they oblivious to the manufacturing potential of emerging economies?

Finally, the case of Nokia, the star amongst handset manufacturers like South Korean giants Samsung and LG. Nokia also lost its high seat by the end of the decade of 2010s (Andersson, 2011). Again, it is important to seek answer to the question why the Nokia management was not able to comprehend the threat of smartphones and the mobile OS-driven competition led by Google (Android) and Apple. Why the Symbian acquisition by Nokia, a right step indeed, was a tad too late and mild?

political perspective

To comprehend such cases, an organizational political perspective anchored with the leadership power base perspective (Northouse 2018) has been adopted. Explaining the failure of these four companies through only one perspective is not very comprehensive, as other reasons would be coexisting with the organizational political angle. Organizations are indeed run by people who, with their organizational culture (embedded with politics), decide organizational strategy. As adage goes—culture eats strategy for breakfast (Teasdale, 2002). Let us consider an organization like a pyramid (refer to exhibit 01). At the base there a large number of employees and as we move towards the top their numbers reduce. The highest number of employees—as workers, sales people—and such others, are at the base. The middle level has fewer employees—mostly managers. The next level comprises select senior management executives and at the top there is only a single person, usually the CEO.

The bottom of any organization, generally, includes people who have a wide variety of views and perspectives. Consider this metaphor. If the colors such as red, yellow, orange, blue, white, pink, violet, green, and others represent a way of thinking, then at the base one would come across employees with different-coloured thinking frames. This is because they come from different family, academic and geographical backgrounds. A majority are freshers and hence do not carry much organizational psychological baggage. Once they join, they are slowly exposed to the organizational socialization process (both formal and informal) (Van Maanen & Schein, 1977). New employees become aware of the desired organizational behavior practices. A new recruit, upon joining Samsung Electronics in South Korea would soon understand that the work culture is Monday-Tuesday-Wednesday-Thursday-Friday-Friday-Friday and then again Monday…Friday-Friday-Friday (Siegel & Chang, 2005). New employees learn about the culture from the stories they hear about—behaviors that are celebrated and those that are frowned upon. Given this, employees who fall within the blue, orange, green, and white color frames would find it difficult to live in an organization filled with red thinkers. So they would either change to red or would leave. One must remember that people join organizations but leave managers (read red-thinking people riding
over others).

Why does one color of thinking dominate an organization? Because in each layer of the organizational pyramid, managers draw their power from one of the following sources: knowledge or expertise, positional or hierarchal, and referent power. For example, a manager at the top has higher positional power compared to her juniors. Thus, she commands more jurisdiction on decision-making budget, organizational resource allocation, and others. She most probably has been promoted in the hierarchy because of her expertise or knowledge power accumulated over the years on a particular business function. Referent power comes into play because a manager knows someone influential. Ideally, expertise power should be chosen over positional or referent power.

However, in case of a catch-22 situation, like the emergence of a new business line such as digital camera, GUI or Ethernet, the top and middle management feel threatened in all the three dimensions of power. If the digital camera business or the GUI division become successful (in terms of contribution to profit and sales to overall business) for Kodak or Xerox, then over the years the manufacturing and sales managers in the analog camera or the photocopy division would lose their position to the new stream of managers. Advent of new technology makes people lose importance—the expertise they have built painfully over the years becomes redundant and learning new skills is difficult for most. Change is difficult for most managers to migrate and then harness it for growth. Thus, these managers defend their turf to the end. They continue to manufacture analog cameras, photocopying machines, low-end phones, or focus on sales only in the known markets. They recognize the importance of new technologies, but they do not act. They still follow dated technology. It is important to note that as per the dictate of bounded rationality (Simon, 1991) and bounded reliability (Kano & Verbeke, 2015) managers work on limited information coupled with limited knowledge of the emergent reality. They are mostly uncertain about the unfolding possibilities and repercussions of future business action. Given this state, managers find comfort in remaining anchored to the confines of extant technologies deployed by the firm.

A firm develops a single color—say red—and not any other color because humans display bounded or limited rationality despite being rational. And beyond being rational, managers are political beings too, and political thinking persists (culture determining strategy and not the other way around). Managers think more about maintaining relationships than about pure play economic gain for firms. Managers, generally, prioritize maintaining good relationship with firstly seniors, then with peers, and finally with subordinates (exhibit 02). Finally, economic gain of firm gets right of way! Thus, in a red organization, all employees who are red-thinking get support from the top. A red manager from the top pulls up a red manager from the rank below and this goes on till the bottommost layer. All the other colors either need to metamorphose to red or leave. Thus, the red CEO gets a red Board; her top management team too is red thinking. Red top management get filled with red senior managers, who choose red middle managers and so on. Space for the managers (whose thinking frames are not red) end at junior management level. Organizations are thus practically not a multitude of competing ideas, opinions, and perspectives but rather a monolith dominated by one color (exhibit 03). Nokia, Motorola, and Kodak were not thousands of employees with thousands of flowers blooming but one flower blooming. The essence is that the dominant color ideology does comprehend the date of expiry of their world of view and practice. However, they are reluctant to let go of power and prevent another competing color bloom though it might be more economically viable and have higher future potency. The loss of power is a one-way ticket for most red-thinking managers. Survival is difficult and hence the natural inclination to protect the extant turf.

a positive narrative

3M has over the years demonstrated an amazing appetite for innovation (Von Hippel, Thomke & Sonnack, 1999). They started their journey as a mining entity, and then graduated to products like sand paper by mastering two capabilities, namely adhesives and thin films. 3M, based on these two capabilities, developed highway markers, cello tape, electrical tapes, audio-video films, floppy disks and biological tapes for post-surgery recovery. Organizations like 3M have, over the years, dealt with success as they have an agenda that ‘x’  percent (say 40 percent) of business profit or revenue has to come from the last ‘y’ years (say four years) of innovation (read new color as every radical innovation). The company gives employees organizational time to experiment and innovate, and funds employee-led experiments. 3M’s top management team vets employee projects for future business endeavour. At 3M, breeding new experiments and innovation has become a politically acceptable narrative. But organizations like this are few and far between, across industries. For organizational design and organizational development practitioners, it is important that if not thousand, at least some flowers (with maximum economic potency) are allowed to bloom. This is a quest challenging to master.

References

  • Nokia’s Rise and (Relative) Fall, What lessons for European Innovation Policy? Andersson, J. (2011), Innovation Management, 2, 30.
  • The concept of corporate strategy, Andrews, K. R. (1971), New York,
  • Why smart executives fail: And what you can learn from their mistakes, Finkelstein, S. (2004), Penguin.
  • The innovators: How a group of inventors, hackers, geniuses and geeks created the digital revolution, Isaacson, W. (2014), Simon and Schuster.
  • The three faces of bounded reliability: Alfred Chandler and the micro-foundations of management theory, Kano, L., & Verbeke, A. (2015),California Management Review, 58(1), 97-122.
  • Indian business groups: Evolution and transformation, Kedia, B. L., Mukherjee, D., & Lahiri, S. (2006), Asia Pacific Journal of Management, 23(4), 559-577.
  • Disruptive technology: How Kodak missed the digital photography revolution, Lucas Jr, H. C., & Goh, J. M. (2009), The Journal of Strategic Information Systems, 18(1), 46-55.
  • The resource-based view within the conversation of strategic management, Mahoney, J. T., & Pandian, J. R. (1992), Strategic management journal, 13(5), 363-380.
  • Leadership: Theory and practice, Northouse, P. G. (2018), Sage publications.
  • Knowledge management framework for high-tech research and development, Parikh, M. (2001), Engineering Management Journal, 13(3), 27-34.
  • Samsung electronics, Siegel, J. I., & Chang, J. J. (2005), Harvard Business Case.
  • Bounded rationality and organizational learning, Simon, H. A. (1991), Organization science, 2(1), 125-134.
  • Culture eats strategy for breakfast! Teasdale, S. (2002).Journal of Innovation in Health Informatics, 10(4), 195-196.
  • Toward a theory of organizational socialization, Van Maanen, J. E., & Schein, E. H. (1977).
  • Creating breakthroughs at 3M, Von Hippel, E., Thomke, S., & Sonnack, M. (1999), Harvard Business Review, 77, 47-57.

* https://hbr.org/product/nokia-the-inside-story-of-the-rise-and-fall-of-a-technology-giant/IN1289-PDF-ENG