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Winning the War Against Bureaucracy: Why Success Breeds Failure

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The history of business is paved with companies where roaring success was followed by steep decline. Learn how to keep this downturn from decimating your company by turning it into the beginning of a Second Cycle in this sample chapter.

Lifecycles Follow the Way People Think

The history of business is paved with companies where roaring success was followed by steep decline: Digital Equipment Corporation, MG-Rover, and Upjohn, just to mention a few. Steep decline followed decades of prosperous growth and industry leadership. It seems as though a virus was allowed to enter into the once-healthy businesses. The virus gradually spread without management or staff really bothering or even knowing what happened. Alarm signals were overheard or neglected for years. Management continued to act as if the company was successful, even at a point where the emerging disaster was obvious to outsiders.

That’s how a company’s lifecycle usually goes: It begins with a period of struggle before the business takes off. Then, there is a period of rapid and prosperous growth with frequent new product introductions, growing market shares, and high customer satisfaction. After this growth period, a period of stagnation often follows, in which management is under increasing pressure. Consultants are brought in and management is changed, followed by painful downsizings that temporarily restore profitability. Mergers and acquisitions are used to create new growth and profits through cost savings from elimination of double functions.

But the capability of the business to continue the former organic growth seems to have disappeared. Despite apparent financial success, the lifecycle is about to turn into a death cycle. Additional management changes, additional downsizings, and additional mergers fail to address the key issue: The company has lost the innovative capability, the focus, and the energy that originally made it successful. Subsequent downsizings lead to corporate anorexia: The organization becomes leaner and weaker.

Companies die from this process, either from being taken over by others or simply by going out of business. The first lifecycle becomes the last. The lifecycle becomes a death cycle.

This book is about breaking the stagnation or downturn of the first cycle and turning it into a second cycle. It helps you understand if you are actually in danger of being caught in the downward cycle. It suggests how you can create a new platform for a second cycle and how you can move the existing organization from the first into the second cycle.

Cycles are determined by the way people in general, and managers in particular, think. To understand why, you need to look upon the way people think.

Imagine you are driving your car on the way to an important meeting. You take an alternative route with very little traffic to play it safe. You have enough time, but not too much. Suddenly, there is a smell from something obviously burned or at least very hot. Within a split second, your brain builds what is called a mental model of the situation, building upon your experience from previous situations and your current situation. How far do you still have to go? How much time do you have? What happened last time you had a burned smell from your car? Where can you get a taxi?

Your mental model of the situation is built on very limited actual information: the smell of something burned. But you add all sorts of other information from past experience to provide you with the relevant framework to analyze the situation and to act. You have stopped thinking about what you will say at the upcoming meeting. Not even 10 percent of your mental energy is devoted to that any more. You have changed your mental model 100 percent, from thinking about today’s meeting to dealing with the smell issue. After a few minutes of driving, you stop the car. Very cautiously, you open the hood to find out how serious the trouble is. Will the motor catch fire?

After a little search, you realize that the smell comes from a few leaves that somehow have entered the motor at a hot spot. The leaves are almost burned and there seems nothing left to be concerned about.

Now your mental model immediately switches back to the situation before you discovered the smell: You now think of the meeting, the people you will talk to, and the contract you hope to land. A new mental model has entered once again based on very limited information, but drawing on vast reservoirs of knowledge from your brain. Again, this new mental model doesn’t share the attention of your mind 80 percent or so. One mental model at a time dominates your thinking 100 percent.

Mental models determine the way people think and act. They enable us to switch very quickly from one situation to the other. We don’t need to gather detailed information about the actual situation because the brain simply chooses a mental model, downloads it, and starts to use it.

Despite quick access, mental models have been built over long periods of time. The more times you have faced a specific type of situation, the more you have developed your relevant mental model.

Organizations have mental models, too, especially successful organizations. Organizations tend to remember their successes and failures. The more successes they experience, the more aspects and nuances they add to their mental model. They remember the development of a very successful product and how they surprised competition with a unique marketing concept. They remember how a group of engineers came up with a new technology that boosted performance of the company’s product, and they don’t forget the managers that came from another industry thinking they could change this industry without fully understanding it.

Organizational memory is the foundation for their mental model. It defines their success formula, such as "The H-P Way," and it determines their reactions to problems and opportunities. It guides their thinking and defines their horizon. The more successful the organization is, the stronger its mental model becomes.

As an illustration, let us go back and take a look at how the mental model of my former company, Oticon, emerged in the 1970s and 1980s.1

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