Defensiveness, Too Much Self-Reliance, and Over Optimism Can Slow Your Profit Growth

Anything that delays you from adapting to irresistible forces (factors outside of your control that drive your market and environment) will create stalled profit performance. Let's look at three common attitudes that result in such delays.

"Circle the Wagons!" --The Defensiveness Stall

Although some organizations avoid being left helpless by irresistible forces, they may fall prey to turning their attention inward too much in creating bulwarks against the impact of the irresistible force. By focusing on a defensive posture, they delay adapting to the new conditions and risk falling behind or even not surviving at all.

Many companies whose stock prices carry low price-earnings valuations will proudly describe what they are doing as a "value-improving" strategy. When asked about the fact that investors are deserting this strategy in droves, the CFO will often confidently reply that it will all turn out in the end.

On later inspection, the result is more often being taken over by another company at a bargain price. The new owner will immediately initiate a better strategy that does translate into significant, sustained stock-price growth that the earlier management could also have done.

"We Can Do It All!" --The Independence Stall

When new irresistible forces arrive or existing ones change their impact, enterprises may find themselves compelled by the need to adapt as quickly as possible. In their rush to respond, the organization's leaders may tend to rely on people or practices that have worked successfully in the past. They may not stop to consider whether the enterprise has the right resources to accomplish the now-required tasks.

Many Internet start-ups have a sound marketing and value model, but do not yet understand how one has to support that model with effective sourcing, supply, and service. Soon they find themselves falling further and further behind in meeting customer expectations with no clear idea about to solve the mountain of fulfillment problems.

"How Can We Miss?" --The Overoptimism Stall

A sense of certainty about success or that an enterprise is well prepared for the future, or simply viewing the world through rose-colored glasses can result in rigid commitment down the wrong path. Successful enterprises are most likely to become subject to this stall, which is one reason why they have such a hard time anticipating and adapting to new circumstances.

Everyone in the company assumes success and is slow to perceive that progress is not occurring from the organization's new initiatives. Press reports stated that Digital Equipment founder and CEO, Kenneth Olsen, had little regard for the potential of personal computers, likening them to toys that would never be serious tools for engineers.

During this time, Digital dominated the market for minicomputers, and had been successful in replacing mainframe computers in many applications. The same forces that allowed the company to prosper as a minicomputer specialist doomed the company to being replaced by competitors making smaller, cheaper machines with the same functionality.

A few years after Olsen was replaced by the board, the company was sold to Compaq Computer, one of the producers of those smaller, cheaper machines. Compaq, in turn, had problems with wishful thinking, and as a result had trouble integrating the two companies and keeping up with Dell Computer's build-to-order business. Compaq's CEO soon lost his job as profits and market share faltered. Compaq in turn was acquired by Hewlett-Packard in a controversial transaction that ultimately cost Hewlett-Packard's CEO her job.

Instead, you should be on the lookout for irresistible forces and develop strategies that cause you to prosper regardless of what direction the forces take.

Copyright 2008 Donald W. Mitchell, All Rights Reserved