Success breeds failure
This complacency is important because it ultimately causes a formerly successful company to lose market share to more adaptive upstarts who aspire to success and are willing to work harder than the complacent incumbent to achieve that success.
Ciba-Geigy was a large, successful Swiss pharmaceuticals company which by the 1980s had been around for over 200 years (one of its predecessors, Geigy was founded in 1758). Ciba-Geigy’s stone headquarters building featured walled-in offices with lights above the doors. If the light was red, the office inhabitant did not wish to be disturbed. Ciba-Geigy’s pharmaceuticals culture demanded top-of-the-line quality in offices, research budgets and scientists, and other resources. This unlimited budget mentality pervaded the entire company, including Ciba-Geigy’s intensely price-competitive, rapidly evolving pigments business. Unfortunately, this highest common denominator (HCD) approach to corporate strategy coupled with a ponderous consensus style of decision-making turned Ciba-Geigy into a lumbering giant that could not compete effectively in any of its markets. Ultimately, Ciba-Geigy’s inability to compete led it to merge in 1994 with Sandoz to form Novartis.
To fight complacency, company boards must ensure that the CEO maintains a healthy paranoia. To assess this trait, boards should evaluate whether their CEO has in their earlier career directly experienced the consequences of corporate complacency as a result of working for a company that collapsed due to such complacency. For example, Cisco Systems’ CEO, John Chambers, worked earlier in his career for Wang, a creator of the word processing market in the 1970s that went out of business after it failed to respond to the popular adoption of PCs and word processing software. Chambers participated in the layoffs that resulted from the collapse of Wang’s revenues. As a result of this experience, Chambers has managed Cisco Systems with a healthy paranoia – putting pressure on its executives to monitor closely how customer needs are changing and adapt accordingly.
To fight complacency, executives must continue to raise performance expectations even as they monitor and adapt to changing customer needs, upstart competitors, and new technologies.