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What Makes Large Companies Fail?


This piece in Quartz focusing on research into the implosion of Canadian Telecoms giant Nortel is fascinating. The study, by the Telfer School of Management at the University of Ottawa, seems to be very comprehensive. They interviewed 48% of all the Nortel executives who were in charge of the company from 1997 through to 2009 when it filed for bankcruptcy, and spoke to executives at 53 different companies that were customers of Nortel in that time. 

Unsurprisingly perhaps, they found that (inspite of the rapidity of Nortel's decline) failure is a long and complicated process dependent on multiple accumulating factors. But when asked about Nortel's biggest management failure, the study's lead author, Jonathan Calof, said this:

"There were three major factors that caused the failure. When Nortel was a market leader in the ’70s, it developed an arrogant culture, which led to poor financial discipline. Then in the ’90s, it focused so intensely on growth that it broke its ability to innovate and read the market. And after the tech bubble popped, it turned inward and cut costs to the point where it alienated customers."

Arrogance, pursuing growth at all costs, innovation inertia. Many of these problems seemingly growing out of a culture that became baked into the company long before it was in trouble, and served to reinforce assumptions that were toxic to the business, and which brought focus away from where it needed to be and created an internally facing company:

“It escalated into hubris to the extent of making it especially difficult to absorb acquisitions, to quickly respond to market needs, and to accept and understand what customers wanted (largely as result of the delusion of ‘we know better’).”

I believe that the potential for rapid disruption that digital has brought to so many markets serves only to amplify the impact of such misaligned corporate culture.

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