Escaping the Burden of Past Success


Academic historians call it “path dependency”: when great organizations become trapped by an accumulated series of choices and events that set them down a narrow path forward and prevent them from adapting to new realities.

Management consultants refer to this same phenomenon as "legacy mindsets." As Ian Davis, the former global managing director of McKinsey & Company, explains in McKinsey Quarterly: "A failure to adapt to seismic change is ... rarely caused by intellectual oversights or an inability to grasp what is happening. More often, the culprit is an inability to escape from a successful past and to accept the huge financial and human costs of responding effectively."

The New York Yankees, it seems, is one such organization. As the New York TimesTyler Kepner recently pointed out, the Yankees—with 23 consecutive winning seasons but only one World Series title since 2000, despite massive payrolls—have become victims of their own success. “That success,” Kepner argued, “creates the illusion that the Yankees simply cannot endure a [losing] season” in order to rebuild, as other teams with fewer resources are sometimes forced to do.

Are we all, like the Yankees appear to be at the moment, prisoners of our past? No. In fact, only by seeing our history objectively can we begin to liberate ourselves from outworn myths and other remnants of a past that is no longer useful.

Two examples come to mind, one inspirational and one cautionary.

IBM

In the early 1990s, IBM was reeling, the victim of the commoditization of computer hardware. New CEO Louis V. Gerstner, appointed in 1993, began his tenure by taking a hard look at IBM’s culture. What he found was an organization still in thrall to the legacy of the legendary IBM System/360, a spectacularly successful mainframe computer that had sustained the company for a quarter century. The very success of the 360 had saddled IBM with a reputation—among its employees no less than its customers—as a leader in computer hardware, a reputation it seemed both unable and unwilling to shake in the industry-wide shift to services.

Then Gerstner, a student of history in fact if not in name, turned to the larger story of IBM, and what he learned proved transformative. From the days of Thomas Watson Sr. and his son, Thomas Watson Jr., IBM had always been a customer-focused company. Its success, Gerstner recognized, had been driven by meeting market demand through radical product innovations such as mechanical tabulating machines, punch-card computers, and, yes, mainframe systems. There was no reason why IBM should not (and could not) reinvent itself now as a services company. After all, that had been its identity all along.

With this deceptively simple insight drawn from the past, Gerstner successfully reimagined IBM’s future, steering the company and its employees into the more profitable and customer-focused fields of software development and consulting. The result was one of the most dramatic corporate turnarounds in history.

RCA

The Radio Company of America (RCA), on the other hand, shows what can happen when companies fail to recognize the implications of their own past. A pioneer in radio from the early 1920s, RCA went on to make its first breakthrough advance in television with the mastery of the fundamentals of vacuum tubes in 1930. Even as the Great Depression took hold, RCA’s CEO, David Sarnoff, poured money into research and development, resulting in dozens of patents on products and processes that made RCA a leader in television for decades to come.

By the late 1960s, though, the triumph of color television was beginning to fade. RCA, trapped in an R&D culture obsessed with blockbusters like early television, downplayed incremental innovation in a relentless search for the revolutionary new product that never materialized: first computers, then Videodisc, which it was convinced would become the industry standard over the challenge of the videotape. Even as Japanese consumer electronics firms were putting pressure on margins, RCA’s research program was increasingly disconnected from the demands of the marketplace. Unable to right the ship, RCA agreed to be acquired in 1986 by General Electric, which sold off most of what was left of the once-mighty enterprise.

A Fork in the Road

The lesson we take from these two great firms—one still going strong, the other no longer in existence—is simple: The future we make often depends on the lessons we learn from our past.

As the great Yankee, Yogi Berra, once put it: “When you come to a fork in the road, take it!” If, on the other hand, you are a leader of today's Yankees or any other successful organization locked in a pattern it cannot break, you would do well to go back to that fork in the road, re-read the signposts, and only then proceed ahead. What looks at first to be a step backwards may well be the beginning of genuine and lasting progress.


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