It's an interesting question. In the 1970s IBM was a dominant, extraordinarily innovative IT company. About 15 years later, in the mid-80s, it went through a crisis. If I remember the numbers correctly, it lost over $40 billion in market capitalisation in the space of 18 months; an extraordinary phenomenon at the time.
What caused a company that was so successful to trip up on its own success?
Many years ago I met a Japanese business school professor, by the name of Ikujiro Nonaka. I spent many hours practising the correct pronunciation of his name. I met him in Seattle, which was at that time an outlier in the US economy.
Seattle is now, of course, one of the most successful business cities in the world, home to Microsoft, Amazon and Starbucks, among others.
My discussion with Nonaka was about the relationship between success and failure. He suggested to me that Japan might well be facing a difficult future (and remember this conversation took place in the 1980s). He wondered whether the basis on which Japan had lifted itself out of the disastrous Second World War – using the practices of quality management, Just-In-Time manufacturing, Kaizen, and all the techniques for which Japan had become famous - would actually trip it up in the 90s? He was postulating that the very ideas and techniques that had made Japan such a cost-effective innovator in the 60s and 70s would be the very cause of its downfall. Strains of the IBM story.
We had a long conversation about what his advice would be to the individuals leading major Japanese companies at that time. His message was blunt and simple. He said the job of a leader is to destroy the organisation. I challenged him and suggested that he meant reform and not destroy. He was adamant. He said that the danger of success is that it creates a level of rigidity that can lead to failure.
You may recall that the Japan of the 1970s and 1980s was probably the fastest growing economy in the world. Some American scholars predicted it might overtake the United States. Nonaka’s view was that if Japan stuck to the methods of the 1980s for the problems of the 1990s, Japan would inevitably get into difficulty.
Looking back on Japan’s lacklustre economic performance since 1990 I reflect often on how right he was. Japan simply missed the opportunity of the new economy, missed the innovation that we find in Silicon Valley, with the likes of Apple, Google and Facebook. And even though it has many innovative companies, reading about the losses that Sony has made, of over $6 billion this year, made me remember Nonaka.
Nonaka’s suggestion was that the role of a leader is to destabilise an organisation, to keep it on the edge and to make sure that it remains dynamic by constantly undermining its own story and thereby innovating. It's a general problem and one that we face as individuals, companies and as countries. To what extent does our own success, our own marketing and communication, become a dogma that doesn't work?
The simple fact is the world does not need our permission to change and most change originates outside of our daily experience. If you are stuck in your own story you are unlikely to spot the slow and gradual changes that reshape the landscape in which you are doing business. That was Nonaka’s message.
Nonaka studied the Japanese military. Firstly its great success in China in the 1930s when it invaded Manchuria for the iron ore and coal, and secondly its great losses in the Second World War fighting the Americans. It invaded China by developing a radically new form of frontal infantry attack as the basis of army manoeuvres. Its tactic became a dogma which became the way the Japanese army thought about combat. Eight years later, Japan found itself in the jungles of Malaysia and SE Asia, where the Americans managed to defeat it at almost every turn. The Japanese were still using the methods of their success in the 1930s for a totally new set of conditions in the 1940s; the Americans came to battle with new technology and modern armaments. Ironically the Japanese knew about these but simply did not build them into their strategy, training or equipment.
The second part of this irony is that in the 1960s and 1970s, America went to Vietnam and applied to that country the very same methods it had used so successfully in the Second World War against the Japanese army. We all know the outcome there.
It seems there is perversely, a converse law, which says that on the one hand, success breeds success, because when there is success there is something to celebrate, something to energise the people; the paradox of it, the other side of the coin, is that success often breeds failure.