The Seven Deadly Business Sins
Why do good companies fail? This question led Jagdish Sheth — a marketing professor and business author — to do extensive research, during which he uncovered the seven most self-destructive habits of good companies. According to Sheth, the habits are: Denial, Arrogance, Complacency, Competency Dependence, Competitive Myopia, Volume Obsession and Territorial Impulse. In this book, Sheth addresses each habit in detail, including case studies, the “warning signs” of the habit and, most importantly, how to break the habit.
Uncovering Your Habits
For example, arrogance — which is described as “pride before the fall,” is aptly illustrated by such colossal failures as Enron and WorldCom, and also by companies whose exceptional past achievement falls through, such as General Motors and Boeing. The author lists some of the warning signs of arrogance: “You stop listening,” “You browbeat others” and “You curry approval.” To break the arrogance habit, a company must, among other things, rotate management in and out of new challenges and advocate external perspectives through other channels, such as leadership institutes.
While arrogance is obviously self-destructive, other habits may seem less so. The habit of “Competency Dependence,” falls into that category, and can be seen as a “curse of incumbency.”
Take the case of Encyclopaedia Britannica. First published in the 1700s, the world’s renowned source of information remained in the forefront of publishing until the digital age, when its large, heavy volumes quickly became obsolete. Britannica responded by purchasing a competitor, Compton’s Encyclopedia, but soon after Compton released the first encyclopedia on CD-ROM in advance of the market, Britannica sold Compton’s NewMedia division, agreeing not to publish a digital Britannica for two years.
Sheth reports that Britannica sold 400,000 units worldwide in 1991, but by the end of the decade, its sales were down to 25,000 units. In 1998, Britannica’s remaining door-to-door salesmen were eliminated. While the company attempted a foray into digital media with Britannica.com, it failed, and by 2002, a 2,000-page paper version of the “Britannica Concise Encyclopaedia” was published.
Encyclopaedia Britannica did not heed the warning signs of competency dependence: Efforts to transform the company were futile, enthusiasm for the company waned and stakeholders jumped ship. To avoid this, the company could have found new applications or new markets, moved upstream or downstream, developed a new competency and refocused its resources.
Kick the Habit
Sheth’s final chapter draws an obvious but useful comparison of corporate habits to human habits: “As in human health, corporate health is better served if self-destructive habits never have a chance to get a foothold.” The author then offers possible means of prevention for each habit, acknowledging that some habits are difficult to prevent. Sheth concludes with the observation that “even as human life expectancy is increasing, corporate life expectancy is decreasing.” The key to reversing this trend, he writes, is recognizing that what currently works may not work in the future. Ultimately, such recognition is embodied by the vision of a company’s leadership. According to Sheth: “The leader who embraces change … will not only shake his company out of yesterday’s self-destructive habits but will also escape the shackles of tomorrow’s.”
Why We Like This Book
The Self-Destructive Habits of Good Companies is a much needed dose of reality in modern business thinking. Instead of relying on theoretical generalities, Sheth provides pertinent examples of good and even great companies that were flawed because of falling victim to habits. The reader may have seen such examples from other sources, but rarely in this context.