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The sin of hubris undoes many a dominant company

Jun 07, 2010 Business Daily, Strategy

“We will encounter multiple forms of hubris in our journey through the stages of decline. We will see hubris in undisciplined leaps into areas where a company cannot become the best. We will see hubris in a company’s pursuit of growth beyond what it can deliver with excellence. We will see hubris in bold, risky decisions that fly in the face of conflicting or negative evidence. We will see hubris in denying even the possibility that the enterprise could be at risk, imperiled by external threats or internal erosion. And we will encounter one of the most insidious forms of hubris: arrogant neglect.”

JIM COLLINS, How The Mighty Fall (2009)

Jim Collins, like his famous book, appears “built to last.” He has withstood the collapse of some of the corporate titans extolled in his previous works, like Circuit City, Motorola and Freddie Mac. As he points out in his latest tome, if some of the companies with previously sterling success records abandon much of what made them great, then let them prepare to fall.

This week I want to zoom in on the corporate sin of hubris. The greeks defined hubris as excessive pride that brings down a hero. And Collins finds this sin in the fall of many former icons. Motorola’s executives, for example, displayed great arrogance in their dismissal of digital technology in the 1990s. It fell from being the world’s number one cellphone maker with a more than 50 per cent market share, to just another me-too player. Circuit City moved away from its core business towards the used car business and DVD rentals, blinded by its success in electrical retailing. In November 2008, after a period of atrophy, it filed for bankruptcy.

The problem of hubris is best illustrated by considering one Steve Jobs. He is the most accomplished CEO of the past decade, having brought his beloved Apple back from near-death in the late 1990s to a colossus whose market capitalisation, believe it or not, today exceeds Wal-Mart’s and Microsoft’s. Mr Jobs has upended one industry after another, moving from computing to movies to music to telephony to books. He releases iconic products in all these industries, and the loyalty he generates in customers is second to none. Most people with Apple products seem to bestow a love on them otherwise reserved for family members!

This gentleman is also famously arrogant and dismissive of competitors. So is he suffering from hubris, and is Apple’s future decline assured? Only if the company moves away from the foundations of its success: its obsession with outstanding products; the delight it takes in breathtaking design; its ability to bond with customers. If Steve Jobs maintains those competencies and instils them in every manager, Apple will continue to prosper. If they remain personal idiosyncracies then he may one day take them too far, and Apple may lose them after him.

It is not pride that undoes leaders and their companies; it is a willingness to allow smugness and complacency to creep in and make them imagine they are untouchable, a breed apart. Uchumi in the 1990s refused to consider that Nakumatt could ever be a major threat; East African Industries regarded Bidco as small fry; and the entire banking sector laughed at the prospects of Equity Bank. The reason all those companies behaved like that is that a period of success brought delusion: an excessive belief in their own powers; a refusal to see the ability of others; and growing distance from their customers.

As Collins points out, the best corporate leaders remain students of their own work. They study their own achievements, always asking why, why, why? They are learning persons rather than knowing ones. They shun dogma and avoid overreach. They are inquisitive, even dubious, about their own success all the way. That is the ultimate protection against a mighty fall.

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