Companies often respond to market shifts by accelerating activities that worked in the past, a tendency I call active inertia. Like a driver whose car has its back wheels stuck in a rut, managers press on the gas hoping to pull out, but instead dig themselves deeper. Hardened commitments mark the well-worn grooves that channel behavior into historical patterns.
Companies fall prey to active inertia when their hardened commitments channel their response to market changes into existing grooves. Below are some warning signals that indicate executives at your organisation may be locked into their historical commitments and susceptible to active inertia, should the environment shift.
In today’s paper, I have written about why good companies decline.
Many people tell a simple story of corporate failure. Success breeds hubris which leads to overreach and triggers decline. After studying the causes of corporate failure and helping companies avoid it for two decades I have discovered a more profound dynamic that drives corporate decline. The commitments required to succeed harden over time and prevent companies from adapting effectively when circumstances shift. Organisastions often succumb to active inertia – they respond to disruptive changes in the environment by accelerating activities that worked in the past. This post describes the dynamic in finer detail.