Why Great Companies Don't Stay Great

Last Updated Sep 16, 2010 8:49 PM EDT

Why Great Companies Don't Stay GreatEver wonder why there are so few perennially successful companies like Cisco and Microsoft? Or why so many once-great companies, like Dell and Nortel, suddenly hit a wall? No, it's not about innovation or culture, although they are factors.

Actually, the whole concept of perpetually great companies is flawed if not entirely fictitious. That's because a ridiculous number of factors influence a company's behavior and performance, not least of which are its leaders, competitors, and the markets it serves.

There are, in fact, three more or less scientific principals that conspire to keep great companies from staying great:
  • Entropy. To paraphrase the second law of thermodynamics, "Entropy always wins," i.e. s**t happens, things change.
  • Evolution. To paraphrase Darwin's theory of natural selection, "Only the fittest survive, but just long enough to have a little fun. Then they die too."
  • Economics. Investing 101: "Past performance is no guarantee of future results."
You think I'm kidding? Well, I'm not. And I actually have two scientific degrees, if you can believe that.

Look at it this way. A number of unlikely factors somehow come together and, voila, you've got a great leader running a successful company. That, in itself, is a very low-probability event. And even if the CEO somehow manages to create a culture that fosters innovation and all that, he and his successors still have the challenge of scaling the company, maintaining market share, creating hot new products, etc., all in the face of changing market demands, increasing competition, internal changes, and the like.

So, given enough time, even the best run companies with cultures that promote all the right critical success factors will inevitably hiccup, face major hurdles, hit a wall, flat-line, or flat out self-destruct. And oftentimes, the CEO that got the company here can't get it there from here. Sometimes, nobody can.

As if that's not enough, let's not forget that leaders are people. And people have issues, weaknesses, and most importantly, they change over time due to a myriad of personal factors that have absolutely nothing to do with work.

The corporate graveyards are filled with once great companies that flamed out. But the more instructive examples are of great companies that fall apart under new leadership, or vice versa. Sometimes the same CEO at the same company succeeds at one time but fails at another:

Apple. Apple was nearly driven into the ground by a trio of leaders - John Sculley, Michael Spindler, and Gil Amelio - after Steve Jobs was deemed toxic to the company and ousted by the board. We all know what happened when Jobs returned. And what would Apple be like without Steve Jobs running the show? John Dvorak thinks Apple without Steve Jobs is Sony. Scary thought.

Dell. From a dorm room in Austin, Texas, Michael Dell grew his brainchild into the world's biggest PC company before finally deciding to turn Dell over to Kevin Rollins. That didn't turn out so well, but even the return of Dell himself has failed to stop the company's slide. What's changed? Too many things, that's for sure.

IBM. Under CEO John Akers, the Big Blue empire began to crumble, losing $16 billion over a three year period until, for the first time in 80 years, the board brought in an outsider, from RJR Nabisco and American Express. Lou Gerstner remade the computer giant into an IT service company, pulling off the greatest turnaround in business history.

Nokia. Having completely missed the smartphone revolution, the world's largest mobile phone maker has finally decided to fire CEO Olli-Pekka Kallasvuo and bring in Microsoft's Stephen Elop to run the show. Some claim that Nokia's problems run deeper than the CEO, but hey, fixing them has to begin there, n'est pas?

Bottom line: The myriad of factors and scientific principals working against great companies staying great renders the entire question of why they don't stay that way academic. They just don't. Disagree? Let's hear it.

Logo courtesy Nokia

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