Can companies suffer from fear of failure? Absolutely. In fact it is a major theme of one of the world’s most respected corporate gurus: Tom Peters. Corporate fear of failure is something he rails against in all his works and certainly in his most famous book: In Search of Excellence (written with Robert H. Waterman Jr. in 1982). According to Peters, fear of failure is the principal cause of paralysis in companies, whether it is the receptionist or the CEO.
To overcome this he recommends that companies adopt a culture of failure. He wants to encourage failure because, without it, companies stop growing. They shun innovation, he says, and instead become smug and arrogant – and they are usually riding for a fall.
According to Peters some of the most innovative companies even build failure into their business model. For instance 3M (inventors of the Post-it Note and much else besides) guarantees product managers the ability to run with their inventions backed up by a commitment to total job security should it fail.
And Peters was writing before the Internet – or even the PC – had utterly changed the business landscape: two technological revolutions that were to catch smug or arrogant companies completely off-guard.
Simon Waldman is a Tom Peters for the dotcom era – surveying the carnage of the past 20-years on the traditional corporate landscape and offering his own recently-published version of In Search of Excellence called Creative Disruption (FT Prentice Hall).
Waldman’s case studies include newspaper groups adapting (or not) to the Internet such as Johnston Press and the New York Times Company, IT companies coping (or not) with the PC such as IBM and Apple, and retailers struggling with music downloading such as HMW. Yet my favourite case study is the one most likely, when thinking about the Internet, to induce a wince or even a refrain such as “ouch” or even the question “do they still exist?”: Encyclopædia Britannica.
Despite its name (it was founded in Scotland in 1768), by the 20th century Encyclopædia Britannica was largely a US operation. And, according to Waldman, its 1900-1980s model of commission-based door-to-door selling of the 30-volume encyclopedias priced at $1,000 (“a small price to pay for a child’s education”) was an absolute sitting duck for the innovations of the 1990s and 2000s.
Yet the business was ravaged long before the Internet took hold in the late 1990s. What did for EB was the arrival of the CD-rom at the beginning of that decade. Microsoft’s Encarta sold at a fraction of the price of EB’s leather-backed volumes and was, ultimately, given away free with every new PC. As Waldman states: “parents decided in droves that if they were going to spend $1,000 on their children’s education it would be better spent on a PC than an encyclopedia – especially if the PC came with a free copy of Encarta”.
What’s interesting here, from a fear of failure perspective, is that Encyclopædia Britannica had launched their own CD-rom version back in 1989, although had made too major errors when doing so, both based on the classic avoidance-thinking of those with high fear of failure. First, to protect the Encyclopædia Britannica brand they launched it via a secondary brand of the company: Comptons, which had nowhere near the cache of the EB name. Second, again to protect the brand – as well as to keep the door-to-door sales team happy – they priced the CD-rom at a near-fatal $895.
Both mistakes were a form of denial regarding the impact of the digital world. Encyclopædia Britannica was a beautiful physical product sold by pounding the sidewalks of suburban America. The senior management – many of whom had come up through the sales force – could not envision a world beyond this, and therefore embraced the new technology not so much with reluctance but from a position of avoidance: as if trying to prove right their original thinking (that the physical product remained preferable).
According to Robert McHenry, the company’s former editor-in-chief, the business suffered due to “the inability of the company’s senior management to embrace electronic publishing and pursue it forcefully”.
As Waldman states, “they were hardly alone among executives of the time overestimating our [i.e. the consumer’s] devotion to physical forms of content”, although this is an extreme case – those gorgeous leather-bound volumes being matchless, surely, against the soulless clicking and keyboard monotony of the PC?
The company finally embraced “the future” by first creating a two-disc CD-rom and, later, a subscription-based web version of the encyclopedia – in the process dismantling the door-to-door sales team and support structure (with 2,000 redundancies).
But, of course, the future was again changing. Indeed, it’s the advent of Wikipedia that drives the average person’s assumption that Encyclopædia Britannica is a long-dead proposition. Yet it was Encarta that destroyed sales volumes for EB – with revenues dropping by around 80% from their peak in the early 1990s.
In fact, Wikipedia did something far worse to Encyclopædia Britannica. According to Waldman it profoundly damaged the old player’s reputation. Wikipedia is the opposite to a hierarchical, self-regarding, absolutist and somewhat-fusty institution. It is a bottom-up, wisdom-of-crowds, open, democratic and liberating embodiment of the Internet. And if this meant a major compromise with respect to quality, a December 2005 “special report” by Nature magazine proved not by stating that, in terms of the level of errors within randomly chosen articles, the two were pretty comparable.
Given this, it is, indeed, a wonder Encyclopædia Britannica is still with us. Yet, astonishingly, Encyclopædia Britannica Inc. is now a profitable company with 85% of its revenues earned digitally, especially from the education and library markets that still dislike the free-for-all chaos of Wikipedia. That said, the business is a fraction of its former size (employing 240 people compared to well over 2,000 at its peak) and has been radically overhauled as a source for web-wary parents and teachers, rather than as the primary reference for the knowledge-thirsty children of the English-speaking world.
According to Waldman, as the digital revolutions got underway Encyclopædia Britannica decided to become a shrinking encyclopedia business rather than the expanding education business it belatedly became. And this, in my view, is a classic case of corporate fear of failure. Relying on existing strengths rather than scanning and embracing future potential; dismissing innovation as a “flash in the pan” rather than as an avenue for expansion worth exploring; and approaching new products and markets with the reluctance of the fearful rather than the excitement of the dynamic – perhaps even using snobbery as an avoidance tactic – all are traits of corporate seizure brought about by fear.
Finally in 2008 Encyclopædia Britannica announced that it would open itself up to Wikipedia-style contributions. It also placed much of its content online for free, although still largely as a hook for potential subscribers. A little late, perhaps, but after its decimation as a business, the digital age had arrived at Encyclopædia Britannica. So why had it taken so long?
“The truth was,” concludes Waldman, “that they had acknowledged this much [i.e. the need for change] earlier, but making it happen had been a formidably challenging process.”
Peters would surely nod in recognition here: that a successful (perhaps even self-satisfied) company fears a future that arrives too quickly – turning them into a “catch-up” organization as each innovation takes them a step further from their traditional model. Indeed, perhaps all companies are destined to this fateful cycle – of being cutting-edge innovators at their birth (admittedly this was in the 1760s in the case of EB), and staid innovation-deniers, as well as defenders of the status-quo, in their dotage. The only alternative is, like 3M and some of Waldman’s more innovative case studies (Apple and the Washington Post Company included), to create a culture where the potential for failure is not only tolerated, but embraced as part of the process.
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