In May "The Largest U.S. Bankruptcies" was published in BusinessWeek – and since then we've added General Motors to the list. From biggest down:
- General Motors
- Lehman Brothers
- Washington Mutual
- Worldcom
- Enron
- Conseco
- Chrysler
- Thornburg Mortgage
- Pacific Gas & Electric
- Texaco
Did you notice that only 1 of these happened prior to 2001 (Texaco)? As I pointed out in Create Marketplace Disruption, the number of bankruptcies has been skyrocketing from historical norms. And the number of bankruptcies of truly huge companies has been growing at an unprecedented rate.
Ever since the modern corporation was born, the theory has been that being large gave a company lower risk. Since the 1940s people have believed that their jobs, and careers, are safer in big corporations. But today big corporations are failing at a truly alarming rate. What's changed?
Very large companies usually have a Success Formula, locked into place with hierarchy, decision-making processes, narrow strategy programs, consistent hiring processes, tight employee review processes, rigid IT infrastructure and very large investments designed to provide economies of scale. Their approach to success was driven by the notion that with size they would create entry barriers which would protect them from competitors, allowing for years of ongoing profitability. These practices were designed to focus the business on its core technology, products, customers and markets. Management theorists believed that with focus came ongoing success. They did expected businesses to be stable. With limited change.
But today we're seeing dramatic market shifts. And locked-in Success Formulas are literally failing because the company, and leadership, is unable to adapt to these shifts. During the 1950s, '60s, '70s and '80s competition was relatively stable. But that is no longer true. Success no longer comes from Defending & Extending what you used to do.
Dramatic improvements in telecommunications connectivity, computer assisted data accumulation and analysis, and global access to resources has changed the basis of competition. Now businesses must adjust to an extremely dynamic marketplace. Scale is meaningless when a new competitor can access your customers with a web page, achieve global distribution with a logistics partner, access a low-cost outsourced manufacturing plant via telephone, and provide 24×7 service with an Indian-based service contractor. When a new technology can go from invention to market in weeks, adaptability becomes far more important than size.
The marketplace has been shifting dramatically since 2001. In everything from manufacturing to financial services to commodities. Yet, far too few companies are adjusting to the new competitive requirements. Too many analysts and business leaders still seek market segments, market share and developing entry barriers. To succeed today businesses have to overcome Lock-in to Success Formulas in order to Disrupt their old approaches and remain vital to customers through the use of White Space to develop, test and implement new solutions. During periods of dramatic shift, those who follow these practices are far more successful. Regardless of size.
Don't forget to download the new ebook "The Fall of GM" for more on how the world's largest auto company failed to adjust to market shifts – and how you can avoid the GM fate by taking actions to make your business more adaptable.