The Idea in Brief
Virtually all leaders recognize the need to learn from failures, but amazingly few try to understand the true causes of their firms’ successes, which helps explain why great companies fall into decline.
The reality is, success can breed failure by hindering learning at both individual and organizational levels, in three interrelated ways:
1. When we succeed, we tend to give too much credit to our talents and our model or strategy and too little to external factors and luck.
2. Success can make us so overconfident that we believe we don’t need to change anything.
3. We have a tendency not to investigate the causes of good performance.
Recognizing that these impediments exist is a big first step in overcoming them. Some basic practices also can help: systematic after-action reviews, tools like Six Sigma, and experiments that test assumptions about what is needed to achieve great performance.
The annals of business history are full of tales of companies that once dominated their industries but fell into decline. The usual reasons offered—staying too close to existing customers, a myopic focus on short-term financial performance, and an inability to adapt business models to disruptive innovation—don’t fully explain how the leaders who had steered these firms to greatness lost their touch.
