Company failures and how to avoid them
Thousands of businesses close down each year. While failure is a painful reality for some organizations, you don’t have to go through it to learn from mistakes. Today, we look at the two main reasons that regularly cause companies to fail.
Knut Haanaes, Senior Partner at the Boston Consulting Group, BCG, Geneva Office and a former Global Leader of BCG’s Strategy Practice, considers that the key to growing long-lasting organizations is finding a sense of balance between continuously doing what you’re good at and searching for new challenges to start with.
According to Knut Haanaes, it is important to understand the difference between two activities: exploration and exploitation.
A) On the one hand, exploration is about innovation, coming up with new product ideas. Knut also stresses the fact that exploration is always risky.
B) Exploitation, on the other hand, is the complete opposite. Exploitation is about perfecting the products or services you offer. It’s about making them better and more accessible. Exploitation is safe on the short term.
However, Knut points out that if an organization focuses only on exploiting, its products or services will eventually become obsolete one day, demonstrating that this strategy is very risky on the long term.
A big concern for CEOs is the fact that as organizations become more experienced and proficient, they also become less innovative. Knut Haanaes mentions that only about 2% of organizations are capable of exploring and exploiting successfully, in parallel.
But why is it so hard to find balance? Knut explains that there are many traps that prevent us from reaching our goal. Here are two of them:
- Perpetual search trap – in this scenario, organizations come up with good ideas, but don’t have the patience or perseverance to put them into practice. So instead of further researching the concepts, they create something totally new.
- Success trap – in this situation, companies are very good at what they do, but wouldn’t change anything. Bill Gates once mentioned that “success is a lousy teacher: it seduces us into thinking we cannot fail.”
Watch this stirring TED Talk and learn more on how to run a company and reinvent it at the same time.
Video source: K. Haanaes (2016), Two reasons companies fail – and how to avoid them, TED Talks