The Challenges of Staying Relevant for Large Companies

Big companies, often seen as symbols of stability and success, are not immune to failure. Throughout history, we have witnessed numerous instances of industry giants crumbling under their own weight. Think Enron, Nokia, Kodak, Motorola, Compaq, Yahoo, Lehman Brothers and many more. While the reasons for such failures may vary, there are common threads that can be identified and analyzed.

Firm-specific reasons – Leadership and differentiation

Effective leadership is paramount for the success and longevity of any organization. When leaders fail to provide a clear vision, make informed decisions, or adapt to changing circumstances, it can have detrimental effects on the entire company. Poor leadership leads to misalignment, lack of direction, and a failure to inspire and motivate employees.

Differentiation plays a crucial role in today’s competitive landscape. Companies that fail to differentiate their products, services, or customer experience risk becoming commoditized and losing relevance. Although organizations may acknowledge the importance of differentiation, they may not invest enough in research and development, innovation, or marketing to maintain a competitive edge.

Industry-specific reasons, such as the emergence of disruptors and new entrants, can also contribute to the failure of big companies. Blockbuster’s demise at the hands of Netflix exemplifies how disruptive companies can significantly impact established players. Blockbuster failed to adapt to the rise of online streaming and clung to its brick-and-mortar stores, underestimating the changing industry landscape. Failure to recognize and adapt to emerging trends can render companies obsolete.

Country-specific reasons, including local beliefs, traditions, and cultural nuances, are important considerations for businesses. Walmart’s business model, characterized by large stores and a focus on low prices, clashed with the German retail landscape. German consumers valued high-quality products, personalized service, and smaller, specialized stores. The company’s inability to adapt to local beliefs and traditions ultimately led to its failure in Germany.

Similarly, Disneyland Paris (Euro Disney) faced severe difficulties in its initial years because Europeans had different expectations regarding food, entertainment, and customer service compared to their American counterparts.

In both cases, the companies were unable to align their strategies with the preferences and expectations of local consumers, leading to their struggles.

Other Factors

Strategic mental frames can limit companies’ perspectives and hinder their ability to seize new opportunities. Xerox’s Palo Alto Research Company, despite developing the first personal computer, the Xerox Alto, failed to fully exploit its potential due to its misalignment with the company’s strategic frames.

Rigid adherence to processes can turn them into routines that consume resources and hinder adaptability. While these processes may have been effective in the past, relying solely on them can impede innovation and responsiveness to changes. McDonald’s, renowned for its emphasis on refining mass-production processes, encountered challenges in adapting to evolving consumer preferences during the 1990s.

While strong social relationships are vital for success, they can become restraints that hinder a company’s exploration of new markets or the development of innovative products. Kirin Brewery’s reluctance to alienate its core customers prevented them from meeting the preferences of younger drinkers, resulting in Asahi Breweries surpassing them in the Japanese beer market. Similarly, airlines such as Lufthansa, British Airways, and KLM were slow to embrace direct online sales to avoid antagonizing travel agents.

Rigid and inflexible values that once drove a company’s success can transform into dogmas, enforcing strict rules and regulations. Consequently, these values lose their inspiring power and foster a defensive mindset that hampers the company’s adaptability to changing circumstances.

The need to Renew, not Revolutionize

Numerous examples highlight how industry leaders’ responses to environmental changes can shape their destinies. Some companies succeed in adapting, while others falter. General Electric and Westinghouse, Volkswagen and Renault, Samsung and the Hanjin Group, and Southwest Airlines and People Express are among the pairs where one company effectively responded to changes, while the other struggled.

Lou Gerstner’s strategy of renewing IBM rather than revolutionizing it serves as a successful example. In 1993 Lou Gerstner joined IBM, a company that had lost more than $16 billion in three years and was in the process of being carved into 13 divisions that could be sold off. However, his approach led to a remarkable fourfold increase in the company’s share price.

The fall of big companies reminds us that no organization is immune to failure. In a rapidly evolving business landscape, innovation, adaptability, and visionary leadership are crucial. Companies must embrace change, foster a culture of innovation, and prioritize customer-centricity to remain relevant. By learning from past mistakes and avoiding complacency, large companies can increase their chances of long-term success and sustainability.

Author: Shivam Agarwal

Assistant Consultant, Strategy Consulting