Nothing is worse for competitiveness than a series of good years. We know from research that success often breeds the seeds of destruction. Take Nokia Mobile Phones during the 2000s. After years of success, management couldn’t envision that they could be displaced in a matter of only a few years.
One of the reasons why successful organisations are at high risk of failure is that management teams that have jumped from success to success are at high risk of becoming complacent. In the words of an executive at a Fortune 500 firm we interviewed: “After many years, they believe they have seen it all, move to cruising speed and cruising mode, stop questioning themselves and stop listening to their teams.” Top teams are like planes: if they don’t touch ground regularly, they will crash.
Traditionally, to make it to the top management team, most leaders have experienced mostly successes, and also because they were selected predominantly on the basis of linear CVs and progressive careers. People are often promoted on the basis of successful projects and recurring sales, despite the known challenge of the Peter’s principle. Being successful often leads to replicating what worked in the past and less on the basis of what the future may need. Success also tends to reinforce managers’ beliefs in their capabilities independent of whether the success was due to luck or clever actions. Put together a group of such individuals and let them experience success together for an extended period of time and you may end up with a group that thinks it’s invincible and that follows old success recipes, experiments very little and dismisses future orientated thinking and diversity.
So, how can organisations escape the success trap and keep the management team out of the complacency zone? Our research suggests several practices that organisations can institute which combine fighting complacency through change in the management team and renewing team individuals.
Rotate members of the management team. By forcing leadership team members to take on new roles, you essentially set them back on their learning curve forcing them to experiment and build new capabilities. Take, for instance, ABB, the Swedish-Swiss technology giant. Earlier this year, Morten Wierod and Tarak Mehta, both members of the executive committee and heads of two of ABBs business areas, swapped responsibility. While this certainly creates a learning curve for each leader it also infuses new ideas into the respective areas. This was also a common practice in Nokia in the early 2000s, when the company was very successful.
Institute tenure limits. By instituting tenure limits you create a natural change in the management team. Furthermore, it signals to the talent below, that positions will open up and makes it more likely to retain the best talent. For instance, Hilti, a global provider of tools, software and systems for the construction industry located in Lichtenstein, has instituted tenure limits among its most senior roles to ensure that fresh blood keeps flowing to the management team.
Regularly reorganise the structure of the management team. Sometimes a change of organisational structure can be a mechanism to bring new topics to the forefront, creates pressure for the management team to develop new capabilities or provides a natural break point to change some management team members in line with new requirements.
Guarantee diversity in the team. By creating leadership teams that are diverse in many different ways such as gender, educational background, upbringing, corporate and non-corporate experience, firms can create an environment with sufficient creative tension to reduce the risk of a management team falling into the comfort and complacency zone.
Be mindful of what you reward. Over time, the management team becomes the example of what the CEO and the board reward. By rewarding experimentation and renewal together with real merit rather than risk avoidance, replication of past successes and promotion based on old fashioned processes, CEOs can foster behaviours that force management team members to step out of their comfort zone and thereby counters the tendency to complacency.
Set the tone in the team. The late Andy Grove, former CEO of Intel, was famous for his quote “only the paranoids survive” while leading Intel from success to success. Despite the success, Grove emphasised that the next inflection point that could put Intel out of business was just around the corner. CEOs can set a culture in the management team and the organisation at large that focuses on identifying change and inflection points and fosters constant renewal, development and transformation of individuals in the team.
A complacent management team is common and therefore it is not surprising that many organisations reach a peak and start declining if vision, strategy and organisational capabilities are not renewed. However, the best organisations and the best leaders put mechanisms in place to sound alarm bells and address the challenges before it’s too late
Thomas Keil and Marianna Zangrillo are internationally recognised authorities on CEO, leadership, and strategy topics and co-authors of The Next CEO: Board and CEO Perspectives for Successful CEO Succession (Routledge)