Active Inertia: Why good companies go bad

"The difference between 'involvement' and 'commitment' is like an eggs-and-ham breakfast: the chicken was 'involved' - the pig was 'committed.’" - Unknown

Donald Sull introduced the term active inertia to represent how a company's reluctance to change can have disastrous consequences.

Sull believes these companies are so wedded to their past successes they can't divorce themselves from what worked before, whether it’s a core strategy, a key customer, product, service, or method.

"When the competitive situation changes, they respond to the future by doing more of what worked in the past – I refer to this as active inertia.", he tells Steve Kayser.

Q: What is active inertia?

A: When companies fail, people often assume the problem is paralysis. Managers freeze like the proverbial deer caught in headlights. I've found the opposite is true. Most environmental shifts happen gradually, and managers anticipate them and respond quickly and forcefully. Their response, however, is often ineffective. Sometimes the problem is managerial arrogance or insufficient resources. My research, however, suggests another cause.

They respond to disruptive changes by accelerating activities that succeeded in the past. When the world changes, in other words, they respond with more of what worked before. A better analogy is a car stuck in a rut: managers put the pedal to the metal and dig the rut deeper.

Examples of prominent companies that fell prey to the active inertia trap include Laura Ashley, National Westminster Bank, Daewoo, Firestone, and McDonalds. Attempts to break out of active inertia can derail for any number of reasons, including time pressure, lack of resources, or just plain bad luck. But patterns of failure do emerge.

Q: How can active inertia be overcome?

A: Commitments. Transforming commitments.

Q: Which are?

A: Pay to play. To fundamentally overcome and transform a company, you must commit to taking actions that break the status quo. To do this, the price (and pain) of not changing has to be higher than the price of changing.

Managers must explicitly commit bold actions that remake an organization's success formula.

Q: Bold actions? Give me an example.

A: Managers might, for example, exit a legacy business, publicly commit to a new goal, or fire powerful executives who oppose the new direction.

Q: Fire powerful executives?

A: Yes, if they backslide into the old status quo pattern or don’t support the new goal.

Q: Companies that have done that?

A: In the book, I describe several successful transformations, including IBM, Nokia, Asahi Breweries, Samsung, and Lloyds-TSB.

Q: Do or die?

A: Yes, but only if it’s right for the company. Sometimes transforming commitments aren’t necessary. Transforming commitments are not a panacea. They can work wonders, but they also have serious side effects.

Q: Not for the fainthearted - or lazy - is it?

A: No. The transformation might destabilize the core business and jeopardize a predictable profit stream. They leave a company particularly vulnerable because they simultaneously set out on a risky new direction while destabilizing the core. Managers shouldn't take these actions lightly.

Q: How can you make sure your transforming commitment is effective?

A: Don’t make 397 of them.

Q: Granted, but …

A: Effective transforming commitments share three characteristics: they are credible, clear, and courageous.

Q: Credible?

A: A manager's commitments are credible to the extent that other people believe they will stay the course even when changes in the business context might promote another course of action in the future. If customers, employees, colleagues, partners, or other stakeholders believe that the manager will be steadfast in honoring their commitment, then they will adjust their own behavior accordingly.

Q: Sounds like trust to me. They have to trust their leader. Clear commitments?

A: Yes. Trust. You are right. Clear commitments increase credibility, are easier to communicate internally and externally, and they provide an easy-to-visualize alternative to the status quo.

Q: Simple. Short. Easy to understand?

A: Yes....And finally, transforming commitments are risky business that requires managers to break from the existing formula rather than fortify it. If your company's survival depends on transforming commitments, then you will require courage.

Q: Are there certain mistakes that always seem to surface?

A: Yes. In studying transformational efforts, I have observed a small number of common mistakes that managers consistently make. I call them the seven deadly sins of transforming commitments because any one of them can kill a transformation. Most are errors of commission actions that managers should not have taken but did anyway. Others are errors of omission actions that a manager should have taken but failed to.

The Seven Deadly Sins of Transforming Commitments

1) Repeating what worked last time.

2) Failing to run the numbers.

3) Not sweating the details.

4) Delegating the hard work.

5) "Half Tackles" Recognizing problems that arise but failing to act on them.

6) Ignoring core values.

7) Sticking with transformational commitments past their sell-by date.

In the book, I illustrate these common mistakes with examples including Enron, Arthur Andersen, Apple Computer, Bertelsmann Group, Compaq, Kmart, Sunbeam and Vivendi.

Q: How would a great leader begin this process … take decisive action to fulfill the mission?

A: Transforming an organization is messy and complicated. But at its essence, it's a three-step process. But first, let me tell you how not to choose an anchor.

How Not to Choose an Anchor.

1) It worked last time.

2) It worked in my last job.

3) It works in theory.

4) It worked for our competition.

5) It worked for GE.


Q: Okay. (Sounds vaguely familiar, where have I heard that before?) The first step?

A: In the first step, a leader selects an anchor. The anchor is what the manager commits to, a new strategic frame, process improvement, renewing the company's resource base, stretching relationships with external parties, or novel values. Different anchors have advantages and limitations as levers to pull an organization out of active inertia. Anchors provide an overarching objective to prioritize actions. They help managers avoid trying to change everything all at once.

In the second step, a manager secures the anchor with transforming commitment actions such as exiting a business, public promises, or personnel decisions that prevent a company from falling back into the status quo.

Q: So, if one had the opportunity to choose a business model in the typewriter market or a forensic DNA testing service, one would choose an anchor between those two?

A: Yes.

Q: And the choice would be?

A: Doesn’t take a Harvard Business School professor to answer that. Perhaps you should read “All I Really Need to Know I Learned in Kindergarten” by Robert Fulgum.

Q: Thanks, I don’t typically delve into theoretical intellectual treatises. But I appreciate your suggestion. Next?

A: In the final step, the manager realigns the organization's remaining frames, resources, processes, relationships and values. The leader's transforming commitments will create tension with elements of the existing success formula and employees can easily slip into the status quo. In this third step, the leader must struggle against backsliding as he brings the success formula into a new alignment.

Q: What type leaders (attributes/personality traits) have the most success at leading change and successfully executing transforming commitments?

A: The best candidates share a few characteristics: they are familiar with the company's business without being trapped in the existing success formula. Their personal values and professional backgrounds are consistent with the anchor chosen and the commitments made. And they don't try to do it all themselves.

They surround themselves with a strong and diverse team. And they have the necessary support, tenure, and incentives to succeed in this leadership role. If these criteria don't fit, then it's dangerous to undertake the transformation.

Q: Any final thoughts?

A: Transforming the status quo demands a personal commitment that feels very different from business as usual. Making bold commitments requires managers to stick their necks out and they have to decide whether they are the right person to do that.

They have choices; committing isn't the only option. They can sit and wait it out or they can quit and do nothing. The last chapter gives people the license to say, "I'm not ready for this." It will help managers think about not only what needs to be done, but also whether they are the right person for the job.