by Art McNeil

Companies achieve market dominance by introducing innovative products or adopting a unique way of doing business that their customers perceive as adding value. A timely innovation often changes the rules of the game and creates a barrier to entry for the competition. But success associated with a major innovation is not achieved because of market impact alone. If the innovation is sufficiently powerful, congruent patterns of behavior form around the breakthrough and the innovator evolves a supportive corporate culture*. As the innovative company adapts to capitalize on its advantage, the cultural alignment creates focus and clarity of purpose. Profit is realized because alignment fosters operating efficiency. Compatible ideas, products, and decisions are embraced, while the ‘out of the box’ suggestions of nonconforming challengers are rejected.

Unfortunately a caveat is attached to innovation based success. Military history is riddled with evidence that the majority of victors do not live happily ever after. That’s because winning generals are prone to reuse technology, strategies, and tactics that helped them win previous battles. Sticking with yesterday’s advantage when the situation has changed is a recipe for disaster. Germany conquered Europe with a new strategy called blitzkrieg (lightning war—a sudden swift military attack). Fixed embattlements such as the Maginot line, once thought to be impenetrable, did nothing to impede the rapidly moving invader. When a culture becomes centered on a specific advantage, there is great risk that ideology will take over—and ideology is anathema to change. During WWII, while Poland was in the process of being invaded, a defending cavalry officer wrote in his field dispatch, “the idea of huge armored vehicles rolling down roads at a fast pace is a dream.”

Success can be a precursor to failure in the business world as well. American Express suffered a near fatal blow when they did not respond to challenges from the banking industry. Amex had evolved a perfectly adapted collective set of habits, to exploit a credit card market of their own creation. But the advantage came with a blind spot. Executives failed to recognize that “upstart” bank cards were changing the rules of the game. Amex resisted lowering the rate charged to retailers—in spite of radically shrinking market share, and would not reduce what business owners viewed as an inordinately long compensation interval. The oversight was not corrected until a new CEO addressed their cultural problem head on. The company had originally become a dominant force because of service innovation—but slipped from dominance when second generation executives allowed the core-value of service to mutate into a change resistant ideology. Senior management saw themselves as care-takers of a great legacy (aka ideology) rather than values driven leaders charged with helping employees respond to evolving consumer needs. Once Amex clarified core-values and once more started using them to refocus their corporate vision, the arrogance associated with ideological mutation was replaced by customer responsiveness—and a once powerful culture was restored.

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