Avoiding the corporate dinosaur syndrome.

Here are the danger signs of a condition that affects many large corporations--and advice on how to correct it.

Every large corporation faces the possibility of evolving into a "dinosaur"--of becoming so big, cumbersome, and highly adapted to its historical environment that it cannot respond to today's rapidly changing climate.

There is nothing new about this phenomenon. In time, most successful corporations develop performance problems and lose ground to new companies. Indeed, the capitalist system is based on the assumption that there will be constant turnover among corporations. It is expected (and in many ways desirable) that a new company with superior services and products will replace a company that becomes inefficient--capable of producing only obsolete products or in some other way unable to cope with its business environment.

But the problems of many large corporations are increasingly visible--and increasingly important to both the world's economy and to our understanding of what makes an organization effective.

Indeed, it is possible for such companies to adapt to changing environments. In the early 1900s, for example, leading U.S. companies included National Sugar, U.S. Leather, National Lead, and the General Electric Company. While most of these companies faded from the scene, GE survived. Certainly, the General Electric of today is far different from the one that thrived at the beginning of the century. And that difference speaks eloquently for the company's ability to adapt.

There are a number of reasons why the rate of change in corporate performance has increased, but two stand out: environmental change and the appearance of nontraditional competitors who are better able to capitalize on the new circumstances. The last decade has seen a tremendous amount of social, economic, political, and technological change. So much change has occurred that in most industries it is highly unlikely that what worked in the past will work as well today or tomorrow. Experience has become a handicap. Indeed, the advantage often goes to nontraditional competitors--firms that score higher on the inexperience curve because they don't have to unlearn outdated habits and escape from old commitments. Start-ups and foreign entrants to new markets start fresh. They address their new environment by changing the rules of the game.

Kodak, IBM, General Motors, and Sears are particularly striking examples of major corporations that developed severe performance problems, at least in part because of their past successes. At one point or another in their history, all were seen as well-managed companies. Unlike National Lead and

U.S. Leather--companies that saw their markets disappear or their core products displaced--these four corporations were simply eclipsed by new competitors who out-performed them. In the case of General Motors and Kodak, those competitors were predominantly off-shore; in the case of Sears and IBM, the challenge came from new U.S. based corporations like Lands' End, Wal-Mart, and Compaq.

The corporate dinosaur syndrome raises two key questions related to organizational effectiveness: Are there identifiable characteristics that mark a company as having a high propensity for losing out to new competitors? And, are there actions that corporations can take to reduce the risk of becoming dinosaurs?

CHARACTERISTICS OF CORPORATE DINOSAURS

A number of identifiable characteristics signal development of the dinosaur syndrome. It is rare to find organizations that have all of these characteristics. It is not uncommon, however, to find organizations with enough of these characteristics to be identified as "at risk." The list of characteristics presented here is not based on a traditional literature review or a statistical analysis of a large data set. Instead, it is drawn from our own extensive organizational analyses and from our recent action research on high-performance work organizations and corporate restructuring.

Interestingly, all of the characteristics associated with the dinosaur syndrome have a marked ambiguity: They might be either advantages or disadvantages, depending on circumstances. At some point in history, each characteristic can contribute to organizational effectiveness, but with time, each can become a liability. A quick overview of the characteristics will serve to highlight the warning signs that corporations should look for. This overview will also lead to a discussion of what organizations can do to guard against the possibility of developing this potentially disabling syndrome.

1. Past Success, Arrogance, and Self-Attribution

Success in the business world is a powerful reinforcer of the status quo. It leads to conservative action with respect to change. Perhaps, more importantly, it often leads to arrogance and a sense of invincibility. There are numerous reasons for this, the most important being that organizations, like individuals, tend to see success as a consequence of their own efforts. Unlike failure, which they can blame on bad luck or highly effective competitors, corporations (as well as individuals) typically attribute success to competencies, wisdom, and high levels of performance.

It is the very success of the past that makes performance liabilities difficult to recognize. This opens the door for competitors to succeed by taking different and unexpected strategies that create a competitive advantage (e.g., building networks of computers to replace mainframes). Once an organization has attained a high level of performance, managers tend to overestimate the difficulty that competitors will have in exceeding that performance level. A number of U.S. auto and electronics companies provide prime examples. These companies had assumed they were producing a reasonably high-quality product, only to see new entrants surpass their performance levels. Pushed out of the leadership position, they found themselves scrambling to stay in the race. For example, because of the standards set by Japanese manufacturers, the number of defects in cars has dropped by 90 percent in just the last decade.

Success vests individuals with special interests in the status quo. Certain positions and departments become powerful, wealthy, and prestigious. Because these elite have a lot to lose, they become the organization's conservative party. They turn a deaf ear to both problems requiring change and innovations that would improve performance. They become risk averse--rather than playing the game to win, they play the game "not to lose." The degree to which they dominate in their organization is directly proportional …