Why did so many big companies end up failing?

Ranjay Gulati teaches business administration at Harvard Business School. Speaking to Srijana Mitra Das, he discusses key strategies which can energize enterprises:

What is the core of your research?

My overall theme is studying how companies unlock growth or find ways to grow both profitably and sustainably. Initially, this had two aspects, namely understanding how a company develops a great strategy with a unique market opportunity and then carries out implementation or building an organizational culture with teams, etc. I then discovered another element. We were looking at Microsoft’s turnaround story and as Satya Nadella told us, Microsoft was transformed by understanding its purpose. This meant discussing and explaining why Microsoft exists — thinking about this allowed the company to consider what its strategy should be and build new momentum around implementation. Microsoft’s leaders spent about nine months debating the company’s purpose, its identity, worldview and motivation. They then created a one-line statement which helped focus the company’s innovations and energies.

I’ve interviewed over 200 people across 18 companies and found purpose can be a remarkable springboard to growth. My book ‘Deep Purpose’ argues that when companies invest in the idea of ​​their purpose, it brings them directional, motivational, relational and reputational gains.

Can you share your findings on what you term ‘agility hacks’?
I was puzzled by why so many big companies ended up failing — did this happen because of inertia, complacency

or tapering innovation? Sears, Roebuck & Co., for instance, invented retail, Kodak designed photography, Motorola developed mobile phones while Nokia devised smartphones — yet, all of these lost their leading position. Studying them, I realized they had created a structure of silos. This is part of a division of labor but, importantly, these weren’t bridged — no one could collaborate or connect information across them. ‘Agility hacks’ are one way to do so.

Businesses like Sony and Novartis, for instance, empowered what they saw as entrepreneurs within their company to work the system. This is very different from the traditional agility approach where businesses think they need to transform the whole company — this can take years. But some companies empower individuals within the organization to form small, cross-functional teams and ‘hack’ problems or deliver quick solutions, using prototyping, customer feedback and adaptation.

Sony was iconic but by the early 2000s, it had gone into a slow fade-out, missing the iPod revolution, mobile phones, etc. By 2012-13, the CEO, Kaz Hirai, saw a risk-averse bureaucracy that was ending up slowing innovations moving from lab to market because these did not fit into existing business verticals. He then made a special unit — an innovation hack — which was to pursue concepts outside existing product categories. This team was told to explore how digitalisation was transforming the field, think of products in a cloud-first world and pursue interoperability both within and beyond Sony. Importantly, this unit would report directly to the CEO, bypassing a large budgeting and decision-making bureaucracy and quickly accessing needed resources. Treated practically as an incubator and given such cover, this team created several breakthrough products, including intelligent home systems and devices, a 4K home projector and a glass sound speaker system.

There are many ways to run agility hacks or tap into employee entrepreneur spirit — some companies hold contests within the organization where the parent company gives the best innovators seed capital and time to work on an idea which belongs to the company. Recognizing the risk of innovation becoming too top-down, Novartis, for instance, held contests among its scientists.

Can you discuss Netflix’s culture which, you posit, promotes agility?
Every organization has a culture which is grown intentionally or develops on its own. Culture can become quite inflexible — it can actually make or break a company. Netflix recognized this from the word go and hence, it deliberately planned its culture to be one that would push the organization to keep changing. When they started in the late 1990s, brick and mortar DVD rental services were ebbing. The whole culture was of navigating change — along with streaming, Netflix aimed to go into content development and explore international markets. So, they established cultural underpinnings like ‘Freedom And Responsibility’ and ‘Context, Not Control’ as part of the business’ Culture Deck. Key strategic components included hiring highly performing individuals or ‘A Players’ and paying them competitively, encouraging innovation through ‘noble bets’ which could even fail, applying comparatively few restrictive HR practices aside from guardrails around harassment, etc., and giving employees the freedom to experiment and make their own decisions. This culture leans on trust, candour and collaboration in terms of information sharing, feedback, etc., curiosity, innovation and flexibility. This helped Netflix expand content production, understand global markets and keep harnessing technology to its benefit.

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