Why companies decline – a new understanding
Posted: February 18, 2011 Filed under: Uncategorized, Leadership issues, Optimizing company performance, Behavioral effects of stress | Tags: thoughts, business, management, news Leave a comment »A well-known problem in business life is that companies tend to loose their initial vitality and creativity after a period of growth and stability, ending in a decline of the company which may defy attempts to save it. So far, the reason for this phenomenon has been considered more or less “mysterious” and there has not been any really effective remedy.
I have found good reasons to believe that a so far overlooked stress-related mechanism may be the root cause of the problem in perhaps a majority of cases, although of course other factors may contribute. This can be solved and thereby the decline can be prevented.
This understanding is based mainly on:
- My experiences as an Occupational Health consultant, which included working for a multinational company
- Experiences from 7 years as an advisor and appeal court expert witness in hundreds of occupational health cases of a major association of labour unions (often I got an insight into the workings of the management when I investigated the court case.)
- Discussions with some top level business consultants who have been involved in reanimation attempts of failing companies.
- My experiences since over 30 years from dealing with stress-related disorders as well as from research on chronic stress and its effects.
Three phases of a company life cycle
[Diagram copied from Bersin&Associates with permission]
This is the “classical” pattern based on the experience from many companies.
- In the upstart, the company is in a creative, entrepreneurial phase where there is a significant risk for failure.
- Thereafter comes the maturity phase where it has established itself on the market and functions in a stable and adequate way when it comes to satisfy the needs of the market. The company has turned into a safe workplace for the employees.
- This is sooner or later followed by a decline phase ending in company death unless radical measures are taken. A key factor in the decline here seems to be a loss of creativity, flexibility and alertness to the market trends, resulting in too late or inadequate adaption to changing market conditions requiring creative renewal or change of the product range. Some consultants dealing with this problem have found that the declining company has lost its creative freshness and has turned bureaucratic.
To prevent decline, managements have tried moving top managers to different positions, employing new company leaders, dividing the company into smaller, independent units, retraining the managers, using manager coaching etc. Mostly these measures had had only partial, if any, success. The reason is that they have not addressed what I think is the root cause in most cases.
The overlooked difference
At the basis of experiences and observations as declared above, I am proposing that a decisive factor leading to decline is a change in the psychological setup of managers seeking employment in the company.
For reasons explained below, companies in the entrepreneurial growth phase tend to attract people with lower stress-proneness than those who are attracted to companies in the maturity phase.
Therefore, there gradually occurs an increase of managers with a psychological setup that causes stress-related suboptimal brain functioning.
Entrepreneurial phase
In the entrepreneurial phase, people who like challenges, daring to take the risk of loosing their job due to project failure are most likely to thrive in the management. Such people tend to be significantly more creative, secure, confident than the average person. They tend to have a low anxiety level, caring more about stimulating work conditions than money and a safe job. These traits are characteristic of Balanced-Emphatic-Behavior (BEB) which is associated with low stress-proneness. For full understanding of this article, I recommend you to read about BEB here if you have not read about it before.
Maturity phase
Not until the company reaches the maturity phase, people who prefer stable, successful companies will want to get employed.
Such people are more likely to be insecure (weak “emotional basic trust”) with proneneness for conscious or suppressed anxiety . Insecurity makes people care more about status, high income, and safe employment because this reduces their anxiety. Such people tend to be less creative, more rigid, more assertion-orientied (prestige/status-fixed), overtly or covertly aggressive and more or less dishonest. These traits are characteristic of Survival-Oriented-Behavior (SOB) which is not an inherited trait, but an aquired disorder associated with high-stress-proneness. I recommend you to read about SOB here if you have not read about it before.
For reasons explained below, BEB people are less likely to seek employment in a company that has reached the maturity phase.
The invisible start of the decline
I am suggesting that the decline starts when the there is an increase of SOB-dominated people in the management to such an extent that the BEB-people loose influence. Such a change would not be obvious, even to those in charge of employing peopole, because the SOB problem is mostly concealed. Even the SOB-persons themselves are mostly un aware of or don’t recognize their problem.
The reason why a shift may occur towards SOB-dominance can be understood from a social-psychological viewpoint:
BEB-people are by nature non-assertive, non-aggressive and thrive in a a positive, friendly atmosphere that enables them to apply their creativity without unnecessary restrictions and bureaucratic formalities.
When SOB people enter the company, they do so in order to increase their incomes (thereby their security) and make a career. So they are intent on aggressively asserting themselves.
When SOB people are approaching leading positions, they may not hesitate to use unfair and unethtical methods to bypass the BEBs.
The critical conflict transforming the company
When SOB people have reached leading positions, subordinate BEB people tend to leave the company. This occurs for different reasons.
SOB people are “bureaucracy-minded” – they want full control and thereby they tend to restrict the flow of creativity and innovation in the company. This is because SOBs want maximum security, and therefore resist change – they feel secure and fine when things are as usual. Therefore they tend to consciously or subconsciously resist innovative solutions. This creates frustration in BEB persons who commonly are the main innovators in the company.
Moreover, the SOBs experience BEB persons as potential threats in their competition for higher positions because of the greater brilliance and creativity they have. So the BEB-persons experience that they are less appreciated if not suppressed by their new SOB-superiors.
As BEBs are not career-minded and assertive, and prefer constructive and friendly cooperation in a creative, non-bureaucratic atmosphere, they tend to leave the company when SOBs are taking over.
For the same reason, the likelihood for new BEB people to seek employment will decrease the more there is of SOB-dominance. BEB people are usually good at grasping the situation quickly and realistically and are likely to avoid seeking employment when sensing the rigid, anti-creative and bureaucratic mentality in a SOB-dominated company.
The probability for SOB-dominance to occur in a company is considerable, because most people in modern societies are more or less in the SOB state, see footnote “Airforce experiences about SOB”.
The most harmful personality setup
The most pronounced SOB persons have a setup that is especially harmful to a company. These people are anxiety-laden to a considerable extent. They are often unaware of their anxiety or can effectively conceal it even to skilled psychologists as well as in common psychological tests (this was the reason why the Swedish Airforce developed “Defense Mechanism Test“, a test that effectively reveals this disturbance that makes pilots prone to make dangerous mistakes under stress).
Such greatly disturbed people are of the so called “Authoritarian personality type“. Their anxiety and related inner insecurity creates a strong urge in them to maximize the sense of security by being “in control” of their situation. Therefore, they aggressively fight for arriving at the very top of the organization, the position of greatest control. Often they skilfully hide these tendencies until they reach the goal.
I don’t think power corrupts, I think power reveals a corrupt mind – which becomes manifest when he is safely established. It is not a coincidence that many dictators are typical exponents of the Authoritarian personality disturbance, often to an extreme degree.
Their strong need to establish outer security makes them abhor unpredictability in every sense. They want maximally possible bureaucratic control and precise, inflexible planning.
They want people to conform and to obey orders without questioning them.
They love people of the same kind, because they are conformistic and therefore predictable. They want people who don’t think independently, but follow orders slavishly without questoing them.
”I don’t want men who think; I want men who know.”
Emperor Julius Cesar (who decided what they should know without questioning it).
They tend to have a strong aversion for BEB people because their creativity and selfconfidence makes them think independently, questioning management decisions, and behave in a non-conformistic way. This creative unpredictability evokes considerably anxiety in the Authoritarian type who therefore wants to get rid of BEB-people.
As BEB-people are unaggressive, they don’t take strife, but tend to leave an organization or a department where an Authoritarian type is in top.
For more about the Authoritarian personality type, see “An especially unsuitable trait” .
The destructive effects of SOB dominance
Gradually, with an increasing SOB dominance, or quite rapidly if an authoritarian SOB type acquires the CEO position, the psychological setup of people in the management is likely to shift from BEB-dominated to SOB-dominated persons.
Thereby, the company looses its creative competence more and more. The BEBs who remain, find increasing difficulties to influence the policy and business strategy of the company and to make the leadership accept their innovative ideas.
Moreover, the SOB persons, and especially the extreme (authoritarian) SOB type, have important weaknesses that increase the risk for precipitating a decline. Their avoidance of unpredictability makes them rigidly conservative, resisting change in every sense. They tend to force their plans and strategies on to reality rather than to adapt to the situation in a realistic way. Therefore they tend to be too late in making decisions necessary for adaption to changing market and competition conditions.
In addition, their brains work suboptimally, with less clarity of mind and with faltering judgement, especially because of defense mechanisms that make them prone to underestimate or misinterpret threats (see Defense Mechanism Test). So they tend to make important mistakes that may further enhance the progression of the decline.
Major companies run the greatest risk
These companies are most likely to targeted by the most disturbed authoritarian SOB types. The reason is that this mentality brings about a strong prestige- and status-orientation. Also famous companies create the greatest feeling of safety in these neurotically security-seeking types. As described in my article on the authoritarian type, they are, since childhood, experts on making themselves popular and are highly skilful and dishonest manipulators (because such strategies, when successful, increase the feeling of being “in control” and secure).
Their strong suppressed anxiety has pressed them to study extremely hard so as to lay the foundation for a top position (mentally sound BEB persons are unlikely to expose themselves to such incredible hardships – if they are highly successful in school, it is due to their brilliance). With their impressive qualifications and charming and winning demeanor they can rapdily manipulate themselves up through the hierarchy (I have seen such cases going all the way to the top in a few years). When they reach the top, they are likely to kick out BEB-persons very soon and consolidate SOB dominance at all levels of management and so the company runs the risk of rapid decline, which is difficult to prevent unless a wise board understands that this charming and highly qualified CEO is the cause of the trouble, although he has been skilfully been able to conceal that, being an expert manipulator and liar, convincingly blaming everybody else.
The greatest danger to the company is that, if a pronounced SOB person is the CEO, he may, due to defense mechanisms or because of his strong prestige-mindedness, actively conceal or bagatellize serious threats and problems both to himself and to the board, so that decisions to make necessary changes to save the company occur too late.
The Apple Computer Inc caseThe developments in the Apple (McIntosh computer) company seem to be an illustrative example. When Steve Jobs left the company in 1985, Peter Drucker said the problem, was that Jobs didn’t adequately understand the discipline of management. It seems that the board asked for more “order” and traditional adminstration. Comment I. Drucker, a traditional management consultant, emphasized the importance of formal adminstrative leadership. After Jobs left the company, several experienced chief executives well versed in “the discipline of management” nearly ran the company into the ground and it lost more and more of its innovative air. Comment 2. So much for the “management discipline” style that evidently emphasized bureaucratic non-innovative leadership of SOB kind. Jobs returned to Apple in 1997 and after that the company has returned to the innovative, entrepreneurial style, soaring from near bancruptcy to huge success, pouring out a number of innovations making it the market leader in different market sectors including cellphones and media players. Comment 3. This example (if my information is correct) demonstrates the great value of upholding “entrepreneurial” leadership and the danger of letting bureaucratic admininistrative managers take over. That is – upholding BEB-dominance and not letting SOB-dominant people lead the company. Jobs is described as a “transformational leader”, he focuses on “transforming” others to help each other, to look out for each other, to be encourage each other, to cooperate harmoniously, and to look out for the organization as a whole (Source: Jobs leadership) Comment 4. This indicates a BEB-kind of mentality. Caring for and supporting each other in harmonious cooperation are important indicators in addition to the great innovative talent of Jobs. Conclusion: Steve Jobs seems to be predominantly BEB (though some indicate Jobs had some behavior that might be of the SOB kind, this does not exclude that he is predominantly BEB – few are “perfectly BEB”). As long as he led the company it flourished and expanded (except for a period of economical recession). It is probable that more and more of SOB people were attracted to the company when its success was established and it is probable that these were uncomfortable with the unpredictable and unconventional BEB-leadership of Jobs. It is known that such dissatisfaction in his subordinates was the key reason for his dismissal as the leader of the company (their description of the situation may have been tainted by the need to justify their actions so it is probably not quite reliable). When Jobs returned and brought back his BEB leadership style and focus on innovative solutions, Apple soared… Addition Oct 28, 2011 Will the new CEO Tim Cook manage to maintain the success? I spotted a quote “[Tim Cook] also spoke about the importance of intuition and told students that “you can’t plan for a predictable life.”" (USA Today). This may indicate BEB dominance as well as the fact that he has been a very well organized person with a great work capacity and is known for his excellent judgement. This is not enough for a definite judgement but the preliminary impression is that he may be predominantly BEB, and if so, it bodes well for the future of the company. |
The Goldman Sachs caseThis is a very illustrative case revealed by the former top executive Greg Smith. When he left the company in March 2012 he wrote a column in New York times that closely revealed the destructive change that had occurred in the finance company Goldman Sachs in New York. When he started to work there, he describes a culture dominated by BEB-values:
The reason why Mr Smith left the company was that this culture gradually deteriorated and finally got completely lost.
His advice to Goldman Sachs is:
Source: “Why I am leaving Goldman Sachs” in New York Times, March 14, 2012. Considering the callouslly criminal behavior of many other Wall street banks and investment enterprises, it seems that the degeneration into dominance of irresponsible, unemphatic and unethical SEB-type persons is in no way unique for Goldman Sachs. This is not surprising. As greed is key aspect of grave SEB (an egoistic behavior with the purpose of compensating the lacking sense of inner security by hoarding money) it is natural that such types are strongly attracted by the possibilites of earning large salaries and huge bonuses in Wall Street companies. This development has accelerated in the last two decades and bonues are now 14 times higher than 25 years ago (Wall Street bonuses vs normal vages, a disturbing trend, Huffington Post 03/18/2010). So naturally, the soicopathically inclined SEB-types are attracted to Wall Street and then it is virtually inevitable that they will take over. The best solution to this would probably be to eliminate bonuses as these encourage a short-sighted hunt for gains at any cost. |
Effective decline prevention
Obviously a completely different approach than conventionally taken is necessary to solve the decline problem. Reorganizing, “relearning” or reshuffling directors does not address this kind of problem.
1. Identifying SOB-type managers
What one obviously needs to do is to identify the most problematic SOB cases in the management and eliminate them from a leading position until their problem has been cured (conventional psychoterapy takes decades to solve such problems, but there are much faster solutions). As said, above, the experience at the Swedish airforce has shown that conventional psychological tests and psychologist interviews are not sufficiently sensitive to reveal SOB cases. The developed a test that has turned to be very effective, see “Defense Mechanism Test (DMT)”.
I am suggesting a test battery that most likely will effectively detect the SOB condition. This includes DMT, that actually already has been used for selecting people for top management, although its initial and major use has been to select people for combat pilot training. This test may be reliable enough and has had an impressive reliability record in the Swedish airforce that has used it since 40 years. Yet, I suggest an additional test, based on brain scanning which probably would be an effective complement to the DMT, see “SOB-test“. Careful testing is important not to confuse SOB with superficially similar behavior, see footnote “Pitfalls in detecting SOB”.
Confidential interviews with selected employees may add some valuable information when it comes to find out who are creating most trouble.
2. Employing BEB-type managers
While detecting the key problematic elements in the company, already the search for BEB people for the management needs to be started.
It is likely that, with the establishment of a BEB-dominated management at all levels, the decline problem will solve automatically unless also many of the employees are SOB, which may be the case if the problem has been there for a long time. To ensure success I think it is wise to use all possible means to catalyze the reversal of the trend.
A problem is that good BEB-types are few and they are not very interested in taking on a SOB-dominated company unless the company shows a clear “disease insight” and declares that it wants to give him full support in creating BEB-dominance.
3. Establishing a BEB-supportive company culture
It is useful to change the psychological climate, the “company culture”. SOB dominance is likely to have affected it in the direction of a negative “SOB-mentaliy” (anti-creative, rigid, formalistic, bureaucratic, hostile, egoistically self-assertion-oriented, more or less uncooperative etc).
To facilitate a rapid turnabout of the situation, it would be useful to establish a company culture that is “BEB”-supportive. This means creating company policies and informal norms that support constructive, friendly cooperation, mutual support, creativity, flexibility, adaptability etc. Not the least, such a culture would increase the likeliness that BEB-types will want to work at the company.
4. Increasing the sense of security
Also, it is valuable to optimize the sense of security of all employees (caring leadership, safe employment rules, generous vacation policies, support of and constructive cooperation with trade unions etc). This may help reduce the stress level of the employees although the major factor deciding the stress level is the stress-proneness which is not affected by changes in outer condtions.
The global furniture company IKEA appears to be a good example of this, and its policy may be an important reason for its great success.
5. The most effective measure – transforming SOBs into BEBs
The most powerful method for thoroughly transforming a company would logically be to reduce the stress-proneness in the employees, thereby reducing SOB and increasing BEB.
There are some methods claiming to do so, but I am aware of only one technique that has a solid and extensive documentation proving that it really does so, along with concrete workplace experience confirming that it works in practice.
It is Transcendental Meditation (TM). The Swedish Airforce, using Defense Mechanism Test, reported that TM decreased the SOB level in one year to an extent that, at best, could be achieved by 20-30 years of psychotherapy according to Dr. Thomas Neumann, who developed the test, see article. This technique differs importantly from other mediation techniques and is easy to learn and to apply. Most importantly, it takes little time (20 min) of daily practice for achieving significant results.
No other method has reported similar profound and rapid effects on stress tolerance, see experiences from companies confirming positive effects of TM. As the technique is easy to learn, and rapidly brings about notable effects it seems to be a practical and realistic measure for solving the “company degeneration problem”. A great advantage, making it useful in all contexts, is that it is not a “teaching”, but a practical technique, not requiring any change in life style or conceptions of life.
It is natural that it takes time for a new and revolutionary method to become accepted, especially when it comes from another culture. However, in recent years, Transcendental Meditation has become more and more accepted by the mainstream. An example of this is that the British government has decided to fully finance a private school, using Transcendental Meditation as an important element for developing the students. Three countries have decided to apply Transcendental Meditation in their public schools as part of the curriculum (Guatemala, El Salvador and Paraguay) and large schools in several other countries are using TM. A famous psychiatrist, former NIH advisor, professor Norman Rosenthal, who has recently published a book “Transcendence” about the benefits of Transcendental Meditation, said in a Huffington Post interview:
“If TM were a new prescription drug, conferring this many benefits, it would be a billion-dollar blockbuster.”
Considering the documented ability of TM to reduce SOB, often suprisingly rapidly, it would be more economical, humane and practicable to transform the SOB people in the company, than to kick them out, especially as it is really difficult to find BEB-type replacements. Of course, for the top positions, it is advisable to employ solid BEB-s who have already established that state. The dismissed SOB-type top managers could be given the opportunity to remain in some kind of non-influential honorary or advisory position, provided they accept to heal their SOB problem and they can be promised to regain their career when cleared by SOB-testing.
Summary
A change of the traits in top management people can cause the transformation of a company from success to decline and death. I think this is the most common reason for this problem.
This transformation occurs when the creative, flexible, secure and non-assertive entrepreneurial type “BEB” personalities, that are attracted to the company managment in the risky start phase, get “crowded out” in the maturity phase by people who seek employment because they want security and prestige. These people are not very creative, insecure, aggressive and assertive career-seekers with rigid minds (“SOB-types”). So with “SOB-dominance” the company looses its “vital nerve”, the creativity, flexibility and adaptability. The probability for this to happen is considerable, not only because SOB-s are attracted to successful companies, but because most people in modern societies are more or less in a SOB-condition.
Especially if a new CEO is employed who is of the most unsuitable kind (authoritarian type) there is a risk for rapid company death because he may tend to delay necessary measures to a too late stage due to faltering judgement because of defence mechanisms that prevent a realistic assessment of the situation.
If SOB- dominance is the cause, which I think mostly is the case, the decline of a company can most effectively be prevented through proper measures aimed at shifting from a dominance of SOB-type managers to BEB-type manager dominance. This effect could be further enhanced by creating a BEB-supportive company culture.
The most effective way to revert the situation, would however be to use a method for developing BEB dominance in the employees. A technique that has solidly documentated effects in this respect is Transcendental Meditation (TM) and experience from companies using it confirms that it works well in practice. See for example: “Performance in the workplace“.
Discussion
[This section is in a build-up phase, based on feed-back i got. The formulations are preliminary]
It may be objected that competition from new, better products, may be an important contributor to decline in some cases. No doubt this may be true, but on the other hand, a vital company with strong financial means is likely to be well updated in this regard.
A creative (BEB-dominated) company is likely to be able to develop new products that keeps them “ahead of the pack”, provided the company has enough financial power to develop new competitive models or to switch to other innovative products . Steve Jobs of Apple computer I think is an excellent example of this when he used the Mac and Ipod experience for entering the mobile phone business in a situation when the computer section did not show a significant growth potential.
So the key issue is still mental (BEB/SOB) in this case – the ability flexibly adapt to, or to forsee a change of the market situation – it is here that a creative and flexible BEB-dominated company has a great advantage over the conservative an uncreative SOB-dominated one.
I have experienced that in some cases when I have pointed out an obvious case of this kind, the people involved completely fail to understand, it is lika a mentally ill person who is unable to realize he is ill. I think this may be an ominous sign, that may indicate, according to my experience, a dangerous level of SOB dominance, because this brings about mental rigidity with a resistance to changing views and understandings even before fairly obvious signals. Psychological Defense Mechanisms that are active in the SOB condition are likely to contribute to an unrealistic appraisal of the situation, because they make people bagatelize, distort or ignore information that generates conscious or subconscious anxiety.
As BEB is possible to identify and to develop, I think this should be a major issue in all companies not only for preventing decline but for enabling continued and growing success because it depends on creativity, flexibility, realism and dynamism – that all are BEB-traits.
Addition oct 8 2011
Political parties run the same risk
For obvious reasons precisely the same transformation from open democracy to totalitarian rule may occur in a political party, especially when its leader has achieved a ruling position in the country and it seems secure not to hide his totalitarian intentions any more. There are numerous examples of democratic parties whose leaders, when achieving a ruling position as a president or prime minister have developed totalitarian rule. In western Europe, where the democratic tradition is strong, it is more likely that this does not occur. In stead it is more likely that the party declines in an analogous way as an “overmature” business, losing its appeal due to lack of creativity and adaptability as a result of being abandoned by BEB people.
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Footnotes
Airforce experiences of SOB
In the 1970-ies I became involved in a project dealing with SOB cases in the Swedish Airforce. Their experience was that almost all flight crashes occurred because the pilot panicked. The very best psychological tests were unable to detect this weakness. So every year there was over 20 flight crashes due to “pilot errors”. A new test was developed, “Defense Mechanism Test ad modum Neumann”. It turned to be 100% effective. Since this test was introduced, flight crashes became very rare, a few a decade and almost never due to pilot errors.
It is interesting to note that, out of 8-900 applicants, the airforce has had difficulties in finding sufficient numbers to fill the annual quota of 20 non-SOB combat pilot trainees.
The airforce tested the effect of Transcendental Meditation (TM) with DMT, and found that it had a remarkable ability to heal SOB.
For more see:
Pitfalls in detecting SOB
Conclusion
Copyright 2011, Jaan Suurkula.
