Part 3

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  1. Premises of the environmental school
    • Premises of the environmental school
    • 1. De omgeving, die zich voordoet aan de organisatie als een stel algemene krachten, is de centrale speler in het strategievormingsproces.

    2. De organisatie moet gehoor geven aan deze krachten, anders wordt ze ‘eruit’ geselecteerd.

    3. De leiding wordt daarmee een passief element met als taak de omgeving te bezien en ervoor te zorgen dat de organisatie zich op een treffende manier aanpast.

    4. Organisaties vormen uiteindelijk clusters in verschillende ecologie-achtige ‘niches’ waar ze blijven totdat de middelen schaars worden of de omstandigheden te vijandig. Dan sterven ze.
  2. The contingency view (Toeval als invalshoek) environmental school
    To contingency theorists, ‘it all depends’: on the size of the organization, its technology, the stability of its context, external hostility, and so on.Volgens Minzberg wordt de omgeving gekenmerkt door vier aspecten, en wel:
    • The contingency view (Toeval als invalshoek)
    • To contingency theorists, ‘it all depends’: on the size of the organization, its technology, the stability of its context, external hostility, and so on.Volgens Minzberg wordt de omgeving gekenmerkt door vier aspecten, en wel:

    - Stabiliteit: De omgeving kan variëren van stabiel tot dynamisch. Een stabiele omgeving is voorspelbaar, terwijl een dynamische omgeving veel te maken heeft met veranderingen en daardoor moeilijk voorspelbaar is.

    - Complexiteit: De omgeving kan variëren van eenvoudig tot complex. Een omgeving is complex als er van de organisatie een grote hoeveelheid geavanceerde kennis over producten, klanten etc. wordt verwacht. De omgeving wordt eenvoudiger als al die kennis kan worden opgesplitst in makkelijk te begrijpen componenten (rationalisatie).

    - Marktverscheidenheid: De markten kunnen variëren van geïntegreerd tot gediversifieerd. Als een onderneming aan slechts één afnemer verkoopt is zij geïntegreerd. Daarentegen is zij gediversifieerd als zij afnemers heeft in bijvoorbeeld verschillende bedrijfstakken en/of verspreid over meerdere landen.

    - Vijandigheid: De omgeving kan variëren van vrijgevig tot vijandig. Kan je zelf je klanten uitzoeken, of moet je alles grijpen wat op je weg komt? Vijandigheid wordt o.a. beïnvloed door vakbonden, de overheid, andere externe groepen en beschikbare middelen.
  3. The population ecoology view (environmental school)
    The population ecoology view 

    In de optiek van populatieecologen is het twijfelachtig dat de belangrijkste kenmerken van de wereld of van organisaties zijn ontstaan door leren of aanpassingen (zoals verondersteld wordt door de contingency theorie). De meeste veranderingen zijn slechts oppervlakkig. Er zijn ook externe druk richting inertia zoals wettelijke en fiscale barrières.Population ecologists use the well-known variation-selection-retention model, but not as we saw it in the learning school. Here the process takes place at the level of populations. In effect, these people perceive organizations from a distance, in terms of collective behavior. To explain change, they look to the interaction between almost fortuitous innovations by individual organizations and the struggle for existence at the population level.The birth of an individual organization via an innovation introduces variation into a population.Zij stellen dat de basisstructuur en het karakter van een onderneming kort na de oprichting vastgelegd worden. Door de handelingen die daarna plaatsvinden, wordt de organisatie meer rigide en is zij minder in staat om echt strategische beslissingen te nemen. Een organisatie moet voldoende middelen hebben om in haar omgeving te kunnen opereren. Echter heeft de omgeving maar een beperkt aantal middelen beschikbaar (fixed carrying capacity). Het is de omgeving die uiteindelijk bepaalt of een organisatie sterk of zwak is (overleeft de organisatie met haar middelen in de omgeving waarin zij opereert?). Zwakke organisaties zullen sterven.Populatie-ecologen kijken naar de populatie van een organisatie (naar het collectieve gedrag). Zij bekijken de wisselwerking tussen toevallige innovaties en de overlevingsdrang van de populatie daarbij (variatie in de populatie).
  4. Volgens Hannan en Freeman (1977) is een organisatie wel degelijk in staat om keuzes te maken. Zij heeft immers de vrijheid om de organisatie op zodanige wijze aan te passen dat ze goed aansluit bij haar omgeving (specialism, efficiency). Ook kan ze middelen in reserve houden voor toekomstige noodgevallen (generalism, flexibility).In keeping with the basic selection metaphor, organizational properties are often seen in terms of ‘liabilities’:
    Volgens Hannan en Freeman (1977) is een organisatie wel degelijk in staat om keuzes te maken. Zij heeft immers de vrijheid om de organisatie op zodanige wijze aan te passen dat ze goed aansluit bij haar omgeving (specialism, efficiency). Ook kan ze middelen in reserve houden voor toekomstige noodgevallen (generalism, flexibility).In keeping with the basic selection metaphor, organizational properties are often seen in terms of ‘liabilities’:

     Liability of smallness: larger organizations are more endowed with resources and thus less likely to fail.40

     Liability of newness: new firms are more likely to die that firms which have been there longer.

     Liability of aging: initial advantages become a source of inertia as the organization grows older.

     Liability of adolescence: the greatest danger is in the transition between infancy and maturity.Birth is accomplished with innovative ideas and entrepreneurial energy, maturity is characterized by considerable resources and power. In between, an organization may have exhausted the former and not established the latter.
  5. Who needs to adapt?Population ecologist may be looking at the world through the wrong end of a telescope. What is nearby seems far away, and so details melt into amorphous blobs. Consider the issue of change. To make its arguments, population ecology has to take a long time horizon. Moreover, one organization may die because of the aggressive strategic actions of another, not because of some abstraction called environment.
    Who needs to adapt?Population ecologist may be looking at the world through the wrong end of a telescope. What is nearby seems far away, and so details melt into amorphous blobs. Consider the issue of change. To make its arguments, population ecology has to take a long time horizon. Moreover, one organization may die because of the aggressive strategic actions of another, not because of some abstraction called environment.
  6. Institutional pressures to conform (environmental school)
    Institutional pressures to conform

    Deze theorie kijkt naar de institutionele druk die een organisatie (a) opgelegd krijgt door concurrenten en (b) de druk die een organisatie zichzelf oplegt door zelf een organisatie te zijn.Hierbij worden twee soorten middelen onderscheiden: economische (geld, machines en land) en symbolische (reputatie van efficiency, geroemd leiderschap en prestige). Strategie is hier: het zoeken naar middelen om aan economische middelen te komen en deze om te zetten in symbolische middelen en vice versa, teneinde de organisatie te beschermen voor onzekerheden uit de omgeving. Impressie management: de omgeving bestaat uit interactie tussen belangrijke leveranciers, klanten, concurrenten, regelgevers en andere overheidsinstanties. Hierdoor ontstaat een ingewikkeld stelsel met normen, waaraan organisaties zich moeten aanpassen. Om succesvol te kunnen zijn zullen alle sterke bedrijven gelijksoortige structuren en methoden hanteren om zich aan de omgeving aan te passen (= institutionele gelijkvormigheid).
  7. De institutionele theorie onderscheidt 3 soorten gelijkvormigheid (isomorphism): (environmental school)
    • De institutionele theorie onderscheidt 3 soorten gelijkvormigheid (isomorphism): (environmental school)
    • 1. Dwingende (coercive) gelijkvormigheid: organisaties worden gedwongen om zich te conformeren naar de omgeving door normen en regels.

    2. Nabootsende (mimetic) gelijkvormigheid: organisaties lenen van en imiteren concurrenten om zich te conformeren.

    3. Normatieve (normative) gelijkvormigheid: doordat experts hun beroepsnormen meenemen in beslissingen binnen de organisatie, wordt deze steeds uniformer en wordt zij dus beïnvloed door beroepsexpertise (de informele en aparte manier van zakendoen valt weg).
  8. Oliver (1991) wijst op een aantal strategische reacties die de onderneming kan ondernemen tegen druk: schikken (acquiesce, toegeven aan de institutionele druk), compromis (gedeeltelijk toegeven), ontwijken, weerstaan (defiance, druk weigeren) en manipuleren (druk veranderen). Deze worden gekoppeld aan een aantal tactieken. Tabel 10.1 p.296 geeft hier inzicht in. Oliver wijkt hierbij af van de institutionele theorie en neigt naar agressief strategisch positioneren zoals bijvoorbeeld het strategisch manoeuvreren bij de (macro-) politieke school.
    Oliver (1991) wijst op een aantal strategische reacties die de onderneming kan ondernemen tegen druk: schikken (acquiesce, toegeven aan de institutionele druk), compromis (gedeeltelijk toegeven), ontwijken, weerstaan (defiance, druk weigeren) en manipuleren (druk veranderen). Deze worden gekoppeld aan een aantal tactieken. Tabel 10.1 p.296 geeft hier inzicht in. Oliver wijkt hierbij af van de institutionele theorie en neigt naar agressief strategisch positioneren zoals bijvoorbeeld het strategisch manoeuvreren bij de (macro-) politieke school.
  9. Critique, contribution, and context of the environmental school
    Critique, contribution, and context of the environmental school

    Gebrekkig op het terrein van strategisch management, doordat de contouren van de omgeving abstract zijn en blijven (vaag en geaggregeerd). De differentiatiestrategie is binnen deze school wellicht de beste; deze laat zien hoe organisaties verschillend van elkaar kunnen zijn in een zelfde omgeving. Niet de omgeving in zijn geheel is turbulent, dynamisch, complex of vijandig, maar dat zijn vaak kleine onderdelen of bepaalde tijdsperioden dat daar sprake van is. In de omgevingsschool wordt strategie dan ook op een té hoog aggregatie niveau bepaald. Het strategisch management zou meer gediend zijn met een rijke beschrijving van soorten omgevingen, die in detail aangeven wat een organisatie op een gegeven moment in haar ontwikkeling kan verwachten.

    - No choice but to act. Our real concern here is with ‘strategic choice’. That organizaztionhave no real strategic choice – that there is some sort of ‘environmental imperative’ out there – has been criticized on a number of grounds. Hoe is het mogelijk dat twee bedrijven met verschillende strategieën beide overleven dezelfde omgeving? (Volgens de populatieecologen zou iedereen dezelfde structuur en middelen moeten hebben om te kunnen overleven, met oog op de dwang die heerst en worden zij gekort in hun vrijheid tot strategische keuzen). Hoe verschillend is een organisatie in wezen van haar omgeving? Doordat bedrijven allianties en joint ventures aangaan, is de grens tussen organisatie en omgeving steeds moeilijker te vinden; de omgeving vervaagt.Bestaan omgevingen of zijn het juist de percepties van mensen – sociale constructies?

    - Choice in constraint. Het strategisch management moet van dichtbij naar de organisatiekijken om strategieën te formuleren. Daarbij moet zij niet het bestaan van de keuze in overweging nemen, maar de omstandigheden die de keuze vergoten of verkleinen. Externe beperkingen kunnen immers erg breed zijn, waardoor de organisatie wel degelijk beweegruimte heeft.What distinguishes this field from some others in management is its very focus on strategic choice: how to find it and where to find it, or else how to create is when it can’t be found, and then how to exploit is.Let us not get sidetracked by excessive overstatement or abstraction, let alone by unresolvable debate.
  10. The configuration school (Strategy formation as a process of transformation)
    The configuration school (Strategy formation as a process of transformation)

    Each school at its own time, in its own place. The configuration school offers the possibility of reconciliation, one way to integrate the messages of the other schools.
  11. Configuration and Transformation (configuration school)
    Configuration and Transformation (configuration school)

    • There are two main sides of this school:
    • 1. One describes the states of the organization and its surrounding context as configurations.
    • 2. The second side describes the strategy-making process as transformation.These are really two sides of the same coin: if an organization adopts states of being, then strategy making becomes a process of leaping from one state to another: Transformation is an inevitable consequence of configuration. There is a time for coherence and a time for change.The configuration school describes the relative stability of strategy within given states, interrupted by occasional and rather dramatic leaps to new ones.If positioning is the figuring school, then this is the configuring school in two respects:
    • 1. How the different dimension of an organization cluster together under particular condition to define states, models, or ideal types.
    • 2. How these different states get sequenced over time, to define stages, periods, and organizational life cycles.
  12. The configuration school describes the relative stability of strategy within given states, interrupted by occasional and rather dramatic leaps to new ones.If positioning is the figuring school, then this is the configuring school in two respects:
    1. How the different dimension of an organization cluster together under particular condition to define states, models, or ideal types.

    2. How these different states get sequenced over time, to define stages, periods, and organizational life cycles.
  13. There are two main sides of this school: (configuration school)
    1. One describes the states of the organization and its surrounding context as configurations.2. The second side describes the strategy-making process as transformation.
  14. Splitters and Lumpers (configuration school)
    Splitters and Lumpers

    Environmental school proponents tend to be inveterate splitters: they like to isolate variables, lay them out along continuous scales, and then study the relationships between pairs of them. Configuration school people are unabashed lumpers: they see the world in terms of nice, neat categories. Nuanced variability is assumed away in favour of overall clustering; statistically speaking, outliers are ignored in favour of central tendencies.The configuration approach can be found in all of the social sciences, although not always in their academic mainstreams. What often keeps it out is an obsession with being scientific, which favours measuring, and so splitting. The field of history is, however, a notable exception. Here lumping is common, although theorizing is not.In strategic management, lumping has been reasonably common. This may reflect the close links between theory and practice: researchers are encouraged to supply what practitioners might find helpful.
  15. Premises of the Configuration School
    Premises of the Configuration School

    In one sense, the premises of the configuration school encompass those of the other schools, but each in a well-defined context. It is, however, this very encompassing that distinguishes the configuration school.

    1. Most of the time, an organization can be described in terms of some kind of stable configuration of its characteristics: for a distinguishable period of time, it adopts a particular form of structure matched to a particular type of context which causes it to engage in particular behaviours that give rise to a particular set of strategies.

    2. These periods of stability are interrupted occasionally by some process of transformation – a quantum leap to another configuration.

    3. These successive states of configuration and periods of transformation may order themselves over time into patterned sequences, for example describing the life cycles of organizations.

    4. The key to strategic management, therefore, is to sustain stability or at least adaptable strategic change most of the time, but periodically to recognize the need for transformation and be able to manage that disruptive process without destroying the organization.

    5. Accordingly, the process of strategy making can be one of conceptual designing or formal planning, systematic analyzing or leadership visioning, cooperative learning or competitive politicking, focusing on individual cognition, collective socialization, or simple response to the forces of the environment; but each must be found at its own time and in its own context. (In other words, the schools of thought on strategy formation themselves represent particular configurations)

    6. The resulting strategies take the form of plans or patterns, positions or perspectives, or else ploys, but again, each for its own time and matched to its own situation.
  16. RESEARCHING CONFIGURATIONConfiguration studies at McGill University
    RESEARCHING CONFIGURATIONConfiguration studies at McGill University

    • Organizations functioned effectively because they put different characteristics together in complementary ways, for example, a certain kind of planning with a certain form of structuring with a certain style of leading (see configurations of structure and power blz. 307-309 kopie)A major research project began at McGill in 1971 to track the strategies of various organizations over long periods of time, typically thirty to fifty or more years. Strategies were identified as patterns in action that sustained themselves for identifiable periods of time. These strategies were then lined up against one another along a common time scale to identify distinct stages in the history of the organization. Among the types of stages identified were:
    • 1. Stage of development (hiring people, establishing systems etc.)
    • 2. Stage of stability (fine-tuning the strategies and structures, etc., in place)
    • 3. Stage of adaptation (marginal changes in structures and strategic positions)
    • 4. Stage of struggle (groping for new sense of direction, whether in limbo, in flux or by experimentation)
    • 5. Stage of revolution (rapid transformation of many characteristics concurrently)
  17. These strategies were then lined up against one another along a common time scale to identify distinct stages in the history of the organization. Among the types of stages identified were:
    1. Stage of development (hiring people, establishing systems etc.)2. Stage of stability (fine-tuning the strategies and structures, etc., in place)3. Stage of adaptation (marginal changes in structures and strategic positions)4. Stage of struggle (groping for new sense of direction, whether in limbo, in flux or by experimentation)5. Stage of revolution (rapid transformation of many characteristics concurrently)
  18. Of interest as well was how such stages tend to sequence themselves over time. Four main patterns were recognized:
    • 1. Periodic bumps, which were common especially in conventional organizations: long periods of stability interrupted by occasional periods of revolution
    • 2. Oscillating shifts, when stages of adaptive convergence toward stability were followed by ones of divergent struggle for change, sometimes in surprisingly regular cycles.
    • 3. Life cycles, where a stage of development was followed by one of stability or maturity etc.
    • 4. Regular progress, in which the organization engaged in more-or-less steady adaptation.

    • Clearly the first three of these are more compatible with the premises of the configuration school than the fourth.
  19. Miller’s Contribution to Configuration
    Miller’s Contribution to Configuration

    Miller’s work has been especially ambitious in its integration across different attributes of organizations, and in its combination of breadth (large samples) with depth (probes into specific organizations). Miller’s theory deals with:- Archetypes: states of strategy, structure, situation, and process.- Transitions between archetypes- Strategic and structural change as quantum rather than incremental.
  20. ARCHETYPESMiller introduced ten archetypes of strategy formation, four of failure and six of success. Some examples:
    ARCHETYPESMiller introduced ten archetypes of strategy formation, four of failure and six of success. Some examples:

    Failure:

    • - Stagnant bureaucracy: a previously placid and simple environment has lulled the firm to sleep.
    • - The Headless Giant: a set of businesses with weak central authority
    • - The Aftermath: where a new team is trying to effect a turnaround with scarce resources and inadequate experience.
    • Success:
    • - The Dominant firm: well established, generally immune from serious challenge, with key patents, centralized structure, and traditional strategies.
    • - The Entrepreneurial Conglomerate: an extension of the rather bold and ingenious person who built and continues to run the organization.
    • - The innovator: generally a smaller firm with niche strategies, a simple structure, and an undiversified product line, with much product innovation.
  21. A QUANTUM VIEW OF CHANGE (configuration)
    A QUANTUM VIEW OF CHANGE

    In later work, Miller and Friensen described change in organizations as quantum, an idea that goes to the very heart of the configuration school.Quantum change: the changing of many element concurrently, in contrast to piecemeal change – one element at a time, say strategy first, then structure, then systems. Such change may be rapid – revolutionary, to use their word – although it can also unfold gradually.Je hebt een stabiele strategie terwijl de omgeving verandert, soms langzaam, soms ineens enorm. Thus, at some point the configuration falls out of synchronization with its environment -> strategic drift.The quantum theory of change seems to apply particularly well to large, established, mass-production organizations – the machines.
  22. CHANGE AS REVOLUTIONARY OR INCREMENTAL? (configuration)
    CHANGE AS REVOLUTIONARY OR INCREMENTAL?

    CHANGE AS REVOLUTIONARY OR INCREMENTAL?Miller’s notion of change as revolutionary in the configuration school is countered by Quinn’s notion of change as incremental in the learning school.Researchers in strategic management who have come to this different conclusions have, in fact, focused on different types of organizations and different episodes in their development; they have also studied different phenomena.Organizations may bide their time until they figure out where they have to go, and then, when a strategic window opens, they leap.This indicates how important it is to appreciate each school of thought about the strategy process as well as to combine them into some kind of comprehensive framework.EXCELLENCE AND THE PERILS OF ECELLENCEConfiguration might well be a natural state of affairs: Darwinian forces could drive organizations to seek some kind of coherence among their different parts, which can be synergistic and so efficient.Miller (1996) suggested that configuration may be the essence of strategy: since strategy is pattern, no coherence or consistency over time implies no overall strategy. Miller also elaborated upon the advantages of configuration, for example that it makes imitation more difficult and allows the organization to react more quickly. But it may have serious downside as well, making things too simple for the manager.
  23. Probes into Configuration
    Here we consider several intense research probes into configuration, and, in the next section, ones into transition.STRATEGY AND STRUCTUREWe must begin with Chandler’s (1962) path breaking work on strategy and structure. Chandler identified four chapters in the history of large American industrial enterprises:
    Probes into Configuration

    • 1. The initial acquisition of resources
    • 2. The executives turned to the more efficient use of these resources, with the establishment of functional structures to coordinate the throughput
    • 3. There followed another period of growth, as limits were met in the initial markets: the firms diversified into new markets or new lines of business related to the existing ones.
    • 4. This required a second shift in structure too. This came to be known as the divisionalized form.

    Chandler completed his study long ago. Were he to update it today, he might be inclined to add a stage of consolidation of the businesses and outsourcing of certain activities, reversing the earlier moves toward diversification and vertical integration.
  24. PROSPECTORS AND DEFENDERS (configuration school)
    PROSPECTORS AND DEFENDERS

    • PROSPECTORS AND DEFENDERSA very different study of Miles and Snow (1978) is described.Based on a study of firms in four industries, they classified corporate behaviours into four broad categories, which they labelled defenders, prospectors, analyzers, and reactors, each with its own unique strategy for relating to ties chosen market(s), as well as its related particular configuration of technology, structure, and processes.
    •  The defender is concerned with stability, namely how to seal off a portion of the market in order to create a stable domain. To keep out competitors, the defender prices46competitively or concentrates on quality. Technological efficiency is important, as is strict control of the organization.
    •  The prospector actively searches out innovative new product and market opportunities. Key is to maintain flexibility in both technology and administrative arrangements.
    •  The analyzer sits between the defenders and the prospectors, seeking to minimize risk while maximizing the opportunity for profit -> the balanced approach.

     The reactor reacts to its environment. This is a failure, inconsistent and unstable. In other words, here we have a residual strategy, arising when one of the other three strategies is inappropriately pursued.
  25. Jim - Collins reason for the research of how the mighty fall
    What happened leading up to the point at which decline became visible, and what did the company do once it began to fall?
  26. Our comparative and historical analysis yielded a descriptive model of how the mighty fall that consists of five stages that proceed in sequence. And here's the really scary part: You do not visibly fall until Stage 4! Companies can be well into Stage 3 decline and still look and feel great, yet be right on the cusp of a huge fall. Decline can sneak up on you, and—seemingly all of a sudden—you're in big trouble.
    Our comparative and historical analysis yielded a descriptive model of how the mighty fall that consists of five stages that proceed in sequence. And here's the really scary part: You do not visibly fall until Stage 4! Companies can be well into Stage 3 decline and still look and feel great, yet be right on the cusp of a huge fall. Decline can sneak up on you, and—seemingly all of a sudden—you're in big trouble.
  27. Uit research van jim collins
    We've found companies that recovered—in some cases, coming back even stronger—after having crashed down into the depths of Stage 4. Our research indicates that organizational decline is largely self-inflicted, and recovery largely within our own control. So long as you never fall all the way to Stage 5, you can rebuild.
  28. Five stages of Decline Jim collins
    • 1. Hubris born of succes
    • 2. Undisciplined Pursuit of more
    • 3. Denial of Risk & Peril
    • 4. Grasping for salvation
    • 5. Capitulation to Irrelevance or Death
  29. Leaders jim collins
    • The best leaders we've studied never
    • presume they've reached ultimate understanding of all the factors that brought
    • them success. For one thing, they retain a somewhat irrational fear that
    • perhaps their success stems in large part from fortuitous circumstance. Suppose
    • you discount your own success ("We might have been just really lucky/were
    • in the right place at the right time/have been living off momentum/have been
    • operating without serious competition") and thereby worry incessantly
    • about how to make yourself stronger and better-positioned for the day your good
    • luck runs out. What's the downside if you're wrong? Minimal: If you're wrong,
    • you'll just be that much stronger by virtue of your disciplined approach. But
    • suppose instead you succumb to hubris and attribute success to your own
    • superior qualities ("We deserve success because we're so good/so smart/so
    • innovative/so amazing"). What's the downside if you're wrong? Significant.
    • You just might find yourself surprised and unprepared when you wake up to
    • discover your vulnerabilities too late.
  30. STAGE 1: HUBRIS BORN OF SUCCESS
    • Great enterprises can become insulated by
    • success; accumulated momentum can carry an enterprise forward for a while, even
    • if its leaders make poor decisions or lose discipline.

    • Stage 1 kicks in when people become
    • arrogant, regarding success virtually as an entitlement, and they lose sight of
    • the true underlying factors that created success in the first place.

    • When the rhetoric of success ("We're
    • successful because we do these specific things") replaces penetrating
    • understanding and insight ("We're successful because we understand
    • why we do these
    • specific things and under what conditions they would no longer work"),
    • decline will very likely follow.

    • Luck and chance play a role in many
    • successful outcomes, and those who fail to acknowledge the role luck may have
    • played in their success—and thereby overestimate their own merit and
    • capabilities—have succumbed to hubris.
  31. STAGE 2: UNDISCIPLINED PURSUIT OF MORE
    • Hubris from Stage 1 ("We're so great,
    • we can do anything!") leads right to Stage 2, the Undisciplined Pursuit of
    • More—more scale, more growth, more acclaim, more of whatever those in power see
    • as "success." Companies in Stage 2 stray from the disciplined
    • creativity that led them to greatness in the first place, making undisciplined
    • leaps into areas where they cannot be great or growing faster than they can
    • achieve with excellence—or both. When an organization grows beyond its ability
    • to fill its key seats with the right people, it has set itself up for a fall.

    • Although complacency and resistance to
    • change remain dangers to any successful enterprise, overreachingbetter
    • captures how the mighty fall.

    • Discontinuous leaps into areas in which you have no
    • burning passion is undisciplined.

    • Taking action inconsistent with your core
    • values is undisciplined. Investing heavily in new arenas where you cannot
    • attain distinctive capability, better than your competitors, is undisciplined.

    • Launching headlong into activities that do
    • not fit with your economic or resource engine is undisciplined.

    •  Addiction to scale is undisciplined. To
    • neglect your core business while you leap after exciting new adventures is
    • undisciplined. To use the organization primarily as a vehicle to increase your
    • own personal success—more wealth, more fame, more power—at the expense of its
    • long-term success is undisciplined. To compromise your values or lose sight of
    • your core purpose in pursuit of growth and expansion is undisciplined.
  32. STAGE 3: DENIAL OF RISK AND PERIL
    Ascompanies move into Stage 3, internal warning signs begin to mount, yetexternal results remain strong enough to "explain away" disturbingdata or to suggest that the difficulties are "temporary" or"cyclic" or "not that bad," and "nothing isfundamentally wrong." In Stage 3, leaders discount negative data, amplifypositive data, and put a positive spin on ambiguous data. Those in power startto blame external factors for setbacks rather than accept responsibility. Thevigorous, fact-based dialogue that characterizes high-performance teamsdwindles or disappears altogether. When those in power begin to imperil theenterprise by taking outsize risks and acting in a way that denies theconsequences of those risks, they are headed straight for Stage 4.

    • To be clear, great enterprises do make big bets, but they avoid big bets that
    • could blow holes below the waterline.
  33. When you make a hole in the side of a ship
    • Bill Gore, founder of W.L. Gore &
    • Associates, articulated a helpful concept for decision-making and risk-taking,
    • what he called the "waterline" principle. Think of being on a ship,
    • and imagine that any decision gone bad will blow a hole in the side of the
    • ship. If you blow a hole above the waterline (where the ship won't take on
    • water and possibly sink), you can patch the hole, learn from the experience,
    • and sail on. But if you blow a hole below the waterline, you can find yourself
    • facing gushers of water pouring in, pulling you toward the ocean floor. And if
    • it's a big enough hole, you might go down really fast, just like some of the
    • financial firm catastrophes of 2008. To be clear, great enterprises do make big
    • bets, but they avoid big bets that could blow holes below the waterline.
  34. STAGE 4: GRASPING FOR SALVATION
    • The cumulative peril and/or risks gone bad
    • of Stage 3 assert themselves, throwing the enterprise into a sharp decline
    • visible to all. The critical question is: How does its leadership respond? By
    • lurching for a quick salvation or by getting back to the disciplines that
    • brought about greatness in the first place? Those who grasp for salvation have
    • fallen into Stage 4. Common "saviors" include a charismatic visionary
    • leader, a bold but untested strategy, a radical transformation, a dramatic
    • cultural revolution, a hoped-for blockbuster product, a
    • "game-changing" acquisition, or any number of other silver-bullet
    • solutions. Initial results from taking dramatic action may appear positive, but
    • they do not last.

    • When we find ourselves in trouble, when we find ourselves
    • on the cusp of falling, our survival instinct and our fear can prompt
    • lurching—reactive behavior absolutely contrary to survival. The very moment
    • when we need to take calm, deliberate action, we run the risk of doing the
    • exact opposite and bringing about the very outcomes we most fear. By grasping
    • about in fearful, frantic reaction, late Stage 4 companies accelerate their own
    • demise. Of course, their leaders can later claim: "But look at everything
    • we did. We changed everything. We tried everything we could think of. We fired every shot we had, and we still fell. You can't blame us for not trying." They fail to see that leaders atop companies in the late stages of decline need to get back to a calm, clear-headed, and focused approach. If you want to reverse decline, be rigorous about what not to do.
  35. STAGE 5: CAPITULATION TO IRRELEVANCE OR DEATH
    • The longer a company remains in Stage 4,
    • repeatedly grasping for silver bullets, the more likely it will spiral
    • downward. In Stage 5, accumulated setbacks and expensive false starts erode
    • financial strength and individual spirit to such an extent that leaders abandon
    • all hope of building a great future. In some cases the company's leader just
    • sells out; in other cases the institution atrophies into utter insignificance;
    • and in the most extreme cases the enterprise simply dies outright.

    • The point of the struggle is not just to survive, but
    • to build an enterprise that makes such a distinctive impact on the world it
    • touches (and does so with such superior performance) that it would leave a
    • gaping hole—a hole that could not be easily filled by any other institution—if
    • it ceased to exist. To accomplish this requires leaders who retain faith that
    • they can find a way to prevail in pursuit of a cause larger than mere survival
    • (and larger than themselves) while also maintaining the stoic will needed to
    • take whatever actions must be taken, however excruciating, for the sake of that
    • cause.

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