At a lunch in the early ’90s, Peter Drucker asked Doug Rauch, who would go on to become the president of Trader Joe’s, the following question:
“Do you know the No. 1 reason why companies fail?”
The answer, Rauch thought to himself, was self-evident: because expenses have exceeded revenue. But Drucker, he figured, was going for something a little more fine-spun. So, he replied, “No, Peter, why?”
“Navel gazing!” Drucker exclaimed, before elaborating: “They become myopic. Often, the worst thing that can happen to a company is success.”
This insight, which Rauch told me some time ago became one of his guiding principles in running Trader Joe’s, leaped to mind last week as I read a piece in McKinsey Quarterly by a former Toyota executive named Deryl Sturdevant.
In his article, Sturdevant discusses the problems that companies tend to face when introducing “lean thinking,” which at Toyota revolves around two main pillars: kaizen (the philosophy of continuous improvement) and giving responsibility and accountability to everyone in the organization, especially line workers.
One reason that so many executives hit serious snags in implementing lean, he says, is that they “have a propensity to talk about the good things they’re doing rather than focus on applying resources to the things that aren’t what they want them to be.”
Take the large manufacturer that Sturdevant recently visited. It had adapted an evaluation tool from Toyota measuring safety, quality, cost and human development; the scores from each category were then averaged together on a scale from zero to five.
When the executive showing Sturdevant around boasted that his unit had scored a perfect five, the Toyota veteran was stunned. “On what dimension?” Sturdevant asked him.
“Overall,” his host answered. “Five was the average.”
Sturdevant explained that the best score he’d ever seen at Toyota was a 3.2—and this didn’t last long. “What happens in Toyota’s culture,” he says, “is that as soon as you start making a lot of progress toward a goal, the goal is changed and the carrot is moved. It’s a deep part of the culture to create new challenges constantly and not to rest when you meet old ones.”
In other words, when Toyota refers to “continuous improvement,” it really means continuous.
So did Drucker, who taught that setting a concrete annual improvement objective for everything an organization does internally and externally is the key to ultimately achieving significant breakthroughs. “The aim of kaizen,” he wrote in Managing in a Time of Great Change, “is to improve a product or service so that it becomes a truly different product or service in two or three years’ time.”
And yet Drucker—whose teachings, as I’ve written previously, had a tremendous influence on Toyota—wasn’t suggesting that executives ignore their successes. The trick is to leverage them, rather than get lulled to sleep by them.
“The first—and usually the best—opportunity for successful change is to exploit one’s own successes and to build on them,” Drucker wrote in Management Challenges for the 21st Century.
Sony, for one, emerged as a consumer-electronics giant in the early 1980s this way. During this period, Drucker pointed out, almost every new product the company brought to market could be traced back to a single offering: the tape recorder. “One success of a Sony product based on the tape recorder,” Drucker wrote, was “used to design the next product and then another product based on the success of that product and so on.
“No step was a big one. And not all of them were successful,” Drucker added. “But by exploiting success, each of these additional new products carried very little risk—so that even when it did not succeed there was not too much damage. And enough of them were successful to make Sony into one of the world’s largest, but also one of the world’s most consistently successful, enterprises.”
What Sony didn’t do—at least during its heyday—was sit still. It was never content. It kept moving the carrot. The same can be said of many of today’s best-managed corporations, like Apple and Google and Amazon, which are forever pushing themselves to new places.
“I always kind of see how I want things to be better, and I’m generally not happy with how things are, or the level of service that we’re providing for people, or the quality of the teams that we built,” Facebook CEO Mark Zuckerberg told Bloomberg Businessweek last month—a perpetual state of dissatisfaction that has led him to step back and write at least one thank-you note every day, a means of acknowledging that many good things are in fact happening at the company.
Still, you can bet that in Zuckerberg’s case, courtesy won’t give way to complacency. Like many of today’s savviest corporate leaders, he clearly understands that success, by its nature, is ephemeral.
“Success always outdates the very behavior that achieved it,” Drucker wrote in Management: Tasks, Responsibilities, Practices. “It always creates new realities. It always creates, above all, its own different problems. Only the fairy story ends, ‘They lived happily ever after.’”
The stories on the business pages never do.