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Stall Points: Most Companies Stop Growing--Yours Doesn't Have To

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Sooner or later all good things come to an end. Winners stumble, the mighty are fallen. People are at the top of their game for only so long. Companies that are the biggest, bestest, fastest growing one year are in the toilet the next.

Literature is filled with stories that teach this lesson. Shakespearean tragedies like Lear and Macbeth detail the challenges faced by those in positions of power.

In contrast, the message of the motivational speakers and books in the modern business world teach how to win, win, win. It's all upside, baby. They ignore, or minimize, the downside.

So it is refreshing to read Stall Points: Most Companies Stop Growing-Yours Doesn't Have To by Matthew Olsen and Derek van Bever. This book examines the fundamental reasons why revenue growth often stalls in successful companies. They identify four main reasons:

1. "Premium position captivity" - when a market leader fails to respond to a low-cost competitor.
2. "Innovation Management Breakdown" - where new product development fails to deliver an ROI.
3. "Premature core abandonment" - where growth opportunities in the core franchise are not exploited or new competitive challenges are ignored.
4. "Talent bench shortfall" - where a company withers due to a lack of leaders and staff able to execute strategy.

It's interesting to review the history Silicon Valley companies and spot candidates for each of these mistakes. I would suggest that, in turn, we can see Sun Microsystems's failure to anticipate the effect of Linux (#1); Xerox PARC's famous inability to capitalize on everything from the mouse to the GUI (#2); MicroPro's failure to hold on to the WordStar franchise in the 1980's (#3); HP's decision to go outside the company for the last two CEO's (#4). In the latter case it can be argued that the stall resulting from the actions of the first candidate has been amply rectified by the actions of the second. The company Board learned from their mistakes.

(Full disclosure: I have not worked for Xerox PARC; at the others I had a ringside seat.)

What's fascinating to consider are some of Olsen & van Bever's prescriptions to avoid these all-to-common errors. These include:

* Being willing to review "belief's that are so obvious and accepted that it is no longer politic to debate them." Something most business cultures are loath to do.
* Writing a "pre-mortem analysis" - a newspaper account five years in the future describing why the company succeeded, and another account detailing why it failed. Not a prescribed activity by the power-of-positive-thinking brigade.
* Setting up a high-level "Shadow Cabinet" to discuss alternatives to current strategy and look for red flag indicators.

These are challenging ideas. One wonders if the mainstream American attitude of winning at all costs can stomach the process. In many organizations it's considered career suicide to point out when the Emperor has no clothes. Think the DoD and Department of State. Likewise, East Coast financial institutions at the core of the current credit market melt-down seemed to lack anyone with this ability. They don't hand out no stinkin' bonus packages down on Wall Street for pointing out how things could go pear shaped. But at least they have the option to short the future and make a dime in the process.

Fortunately, it's more in the nature of Silicon Valley to encourage and reward disruptive innovation. Out here, companies don't stall as much as crash and burn. Out of the ashes, new ones are built. In the current wave of consolidations around the high-tech landscape there's plenty of people making a good living catching the guys who are in stall mode and revving up the engines. In doing this, they often implement many of the solutions Olsen and van Bever proscribe: reviewing core assumptions; testing alternatives; scenario planning; zero-sum budgeting.

Driven by the relentless pace of technological change, business models learn from failure and reinvent. This is the competitive advantage of Silicon Valley.

While there are many reasons to recommend this book, three in particular deserve mention.

First, the authors' approach to the problem of achieving sustained growth is inherently empirical and comprehensive. This differentiates their work from virtually every other tome on growth in the marketplace. Most such volumes, no matter how well written, are inherently versions of "post hoc, ergo propter hoc" analysis. Alpha Company adopted strategy X. Alpha Company succeeded. If you adopt strategy X, you will also succeed. The problem with this line of analysis is obvious to any student of Aristotelian logic, and equally obvious to anyone who has run a business. High-level strategies do not necessarily transfer from one industry, market, or corporate culture to another. Further, even sound strategies often fail because of breakdowns in execution. It's less the specific strategy that creates success than it is exceptional implementation of any strategy. (The recent work of Bossidy and Charan is very instructive in this regard.)

In stark contrast, the authors have conducted a rigorous analysis of all companies represented in the Fortune 100 over the past 50 years (and a handful of equivalent companies from outside of the US and from private equity.) The cumulative weight of the evidence commands much more authority than another well-documented case study of Dell, Merck, Johnson & Johnson, or Starbucks.

Second, the book is relentlessly prescriptive. Having identified the most common root causes leading to growth stalls, the authors provide a substantial number of specific actions, tactics, and business practices that real companies have used to overcome them. (And per my first point above, as a manager one takes much more confidence in adopting those actions because the analysis behind them is thorough and comprehensive.) Further, many of those actions are not of the nature of expensive, cumbersome new initiatives. A number of the suggested activities could be easily integrated into most organizations' current strategic planning and review processes.

Finally, the book is exceptionally well-written. This attribute is near and dear to my heart. As a voracious reader of business literature, I am frequently dismayed by the quality of the prose embodied by this particular niche of our culture. Most authors in the trade fall into one of two equally sophomoric camps. The first is characterized by the worst sort of academic rhetoric and reads about as well as your average software manual. Assuming you can stay awake long enough to finish it, one finds it a tiresome, often fruitless exercise, to extract any real learning. The other camp, which may be more annoying, is the folksy style so in vogue with ex-CEO memoirs. "We shook things up, charged forward, made up a plan as we went along, and kicked a lot of butt on the way."

Olson and Van Bever are gifted students of business, but they are equally gifted writers. Their chapters, and indeed the entire book, have a readable cadence, with appropriate amounts of wit, and they never make the audience work an iota harder than necessary to understand their point. They also understand when to stop hammering that point home. Sometimes a simple sentence is sufficient; other times several paragraphs are necessary, and the authors seem to have an intuitive feel for the difference. I challenge you to read this volume and not find yourself enjoying the process as you learn something on the journey. Very few competitive volumes pass that test.

This is the most significant business book I have ever read ...

This book is exceptionally well-researched and fact-based. It is a must-read for C-level executives as well as business school students and all people interested in business or business history.

If you even wonder why some large companies come and go, why some big companies continue to prosper while others flowered and then withered, this is the book with answered. If you'd like to know about the biggest perils a large company can face, you must read this book. If you want to be smarter than average business consultants, read this book. If you ever wonder what the secret formulas are for a company to continue to do well and avoid the pitfalls of the stalls, this book has the answer.

The authors analyzed the Fortune-100 companies in the past 50 years for a total of 500 companies for the reasons why the revenue growth stalled for most of the companies. They also performed in-depth analysis of 50 of these 500 companies. Once a company stalled, it can seldom come back to pre-stall growth. Most likely, it will loose two-thirds of its market share and will have near-zero or even negative growth rate afterwards.

Five stars are not enough for this book. It should be given seven stars!

A few excerpts from this book will give you the full flavor. "At Most (87%) large companies have stalled (some, 11% have restarted), most of these stalls (87%) can be attributable to controllable factors, and the vast majority of these factors relate back to a strategy choice or decision by the executive team. All were issues being openly discussed in their respective organizations in the years surrounding the revenue stalls, and all were challenges quite plausibly within the management team's power to respond to with a more effective strategy initiative. The authors further highlight four clusters of issues that account for more than half of the stalls: Premium position captivity, Innovation management breakdown, Premature core abandonment, and Talent bench shortfall. These are further detailed in the book. They note that "the stubborn pattern of ineffective responses (to these strategic issues) suggest a deeper problem".

The authors reach the conclusion that this deeper problem "lies in the insights of organizational psychologists into the related phenomena of shared mental models and the underlying assumption sets that supports them. The formation of these shared mental models is extraordinarily strong in successful organizations, where the positive feedback to the validity of the shared mental model has been in place for some time. The problem arises when the set of strategic assumptions on which the model is based begins to deteriorate". "Once undermined, the mental models of the senior management team lead to a peculiar isolation and resistance to the new external market and strategic realities. What had formerly being the shared and valid vision of the senior team turns into a screen that distorts the team's view of the best way forward."

The authors suggest that "the balancing act for an executive team wishing to avoid this syndrome is to achieve the benefits of group cohesiveness while continually revisiting the underpinnings of that cohesiveness; the shared assumptions that underlie strategy."

Four lessons arise from the analysis in this book: A stall is all but certain, the probability of a stall point rises with time, stalls are all but invisible to the outside world, and soft landing is a myth. The best quote of the book is that of George Stalk: "the world comes at you quicker than you think, and you have to be faster at responding that you might have imagined". This book is a very good companion to Jim Collins' "How the Mighty Fall".

Stall Points tells us to test our strategic assumptions if we want to avoid stalling. That in itself is remarkable advice at a time when risks seem to lurk everywhere -- it's a reminder that most big problems are under our control precisely because they're strategic.

Those strategic problems might involve abandoning a core business too soon or focusing exclusively on one too long despite disruptive threats. The point is that these strategic choices about where and when to compete explain the majority of stalls -- not uncontrollable bolts from the blue. I suspect even the sub-prime mortgage crisis will eventually be added to the long column of controllable business disasters.

Even more refreshing in Matt Olson's and Derek van Bever's book are the integrity of the method, the contrarian thesis, and the sobriety of the solutions.
-- The great advantage of the method is its avoidance of survivor bias, which, as Michael Raynor points out, ignores the riskiness of highly successful gambits.
-- The thesis that strategy matters is a much-needed corrective to all the books that write dismissively about strategy as if it reduced to execution, much as if goals could somehow reduce to facts.
-- And there are no zero-sum solutions in this book, like, say, investing in what would turn out to be the same data analysis system every other reader bought.

The book deserves to be read closely. It may even deserve an after-life. After all, one of the key development questions today is why micro-enterprises stall. One hopes to see authors Olson and van Bever wearing safari hats soon in the jungles of Colombia and the steppes of Kazakhstan finding out why the micro-enterprises on which depend the welfare of so many of the world's working poor stay micro.

Why and how obsolete strategic assumptions can threaten sustainable growth

In this brilliant volume, Matthew Olson and Derek van Bever assert that "the assumptions a management team holds most dearly - has known so long or so well that they are no longer debated - pose the greatest danger to growth. In other words, it is not what you know that isn't so that will stop your growth run - more likely, it's what you know that's [begin italics] no longer so [end italics]." It is worth noting that assertions such as this one are based on the rigorous and extensive research Olson and van Bever conducted over a period of several years. For example, the material in Part I (The Growth Experience of Large Firms) is based on "a comprehensive quantitative analysis of more than five hundred companies that have numbered among the Fortune 100 across the pasty fifty years.

As for Part II (The Root Causes of Growth Stalls) they complement the quantitative analysis with "detailed case analysis of a subset of the Fortune 100 to determine why growth stalls occur." Then in Part III (Avoiding or Recovering from Growth Stalls), Olson and van Bever examine the controllability of stall points previously discussed that leads them to the implications of what they learned for executives: "you must continually articulate and stress-test the assumptions underlying your strategy because it is the assumptions that you believe most deeply or that you held true for the longest time that are likely to provide your undoing. You may think you are currently doing this, but the odds are that you are not, and it is an oversight that you suffer at your peril."

Olson and van Bever note several times throughout their narrative that it is common for an organization to stall, it is hard to see a stall coming, and it is extremely difficult to recover from a stall; also, that strategic myopia can occur at the highest executive levels even in organizations that are annually ranked among the most valuable, most highly admired, most profitable, etc. For example, 3M, American Express, Apple Computer, IBM, Rubbermaid, and Xerox. Of course, the degree of severity of consequences from a stall period varies from one organization to the next, as does the length of that period.

Many of those who are thinking about reading this book may well ask, "All well and good, indeed very interesting, but how specifically can this book help me and my own organization to avoid or recover from a stall period?" Hence the importance of the last of five appendices that provides a diagnostic test for senior managers to complete. Each respondent is asked to rate each of 50 "red flag warnings of an impending doom" in terms of having No Concern, Moderate Concern, or Substantial Concern about it. In my opinion, this diagnostic test (all by itself) is worth far more than the cost of the book. Olson and van Bever also offer five foundational recommendations (in the final chapter) for executive teams that find themselves struggling to recover top-line momentum, and briefly explain the importance of each:

1. Build consensus about the sources of weakness in your core business strategy between the top management team and "skip-level" management.

2. Confront the operational and/or business model challenges in your core business that you previously have avoided.

3. For even the closest of adjacency extensions, conduct a careful "gap analysis" to identify required changes to the core business model.

4. Examine opportunity for new business models early in the new product development process.

5. Exploit "privileged insight" into customers in building new growth platforms.

I appreciate the fact that after briefly identifying or suggesting a "what" (e.g. a challenge, question, problem, peril, or opportunity), Olson and van Bever devote the bulk of their attention to explaining the "how." For example,

How to recognize the limits of prudent growth
How to recognize a stall point
How to calculate the costs of a stall period
Why companies stall and how to avoid or recover from one
How to take into full account various strategic factors (e.g. "premium position captivity")
How to take into account various organization design factors (e.g. talent bench shortfall)

I also commend them on the provision of five appendices in which they identify the companies in their sample, explain their methodology, list case study companies for stall factor taxonomy (in business markets ranging from Asset-Intensive to Tech-Intensive), provide stall factor definitions, and then conclude with the aforementioned diagnostic test in Appendix 5.

Those who share my high regard for this book are urged to check out Enterprise Architecture as Strategy: Creating a Foundation for Business Execution co-authored by Jeanne W. Ross, Peter Weill and David Robertson as well as Dean Spitzer's Transforming Performance Measurement: Rethinking the Way We Measure and Drive Organizational Success, Edward Lawler's Talent: Making People Your Competitive Advantage, Jeffrey Pfeffer's What Were They Thinking?: Unconventional Wisdom About Management, and Hard Facts, Dangerous Half-Truths And Total Nonsense: Profiting From Evidence-Based Management co-authored by Pfeffer and Robert Sutton.

INSIGHTS: (1) When companies reach a particular size (presently about USD 40b), their growth rate start tapering down (growth rate for Fortune 1, 5 & 10 companies: 3.3%, 4.6% & 7.8% respectively). (2) The effect of the growth slowdown (stall) is brutal; there is nothing called soft landing. (3) Faster they recover from stall, better are their chances of success

ANALYSIS: The quality of analysis carried out to identify the list of possible ailments (External factors 13%, Startegic Factors 70% & Organizational Factors 17%) and the flavours they come in (sub-categories) is excellent. Each one of these stall factors has been thoroughly analyzed and explained.

PRESENTATION: A tough subject has been written in (relatively) easy language and peppered with illuminating charts. One can get the meat of the book only by going through the charts (is that why this book was unusually wrapped in cellophane on the bookstore shelf?).

NON-SPECULATIVE: Authors have strictly restricted themselves to inferences from available hard data. They refrained from speculations and/or anecdotal evidences. Such a relief.

PRACTICAL: There are loads of recommendations for diagnosis and (to some extent) cure for the maladies mentioned in the book. This is not just theoretical exercise. It is actually a life saver/giver for someone who is about to get a major whack on the head (which, almost all of us are).

OEN SIZE FITS ALL: The sicknesses afflicting these large companies listed here are not unique to the behemoths alone. These very same bugs bite even toddlers (like the small company that I am running) and make them sick. I gained immensely by reading this book (now, will I apply my learning is all together a different matter and, of course, not a subject of this review anyway <smile>)

A CRUCIAL SHORTFALL: The book does a thorough job of saying (to use human body as analogy) that when we hit 40, our body starts breaking down and we get into all sort of trouble like insulin resistance, heart disease, etc., etc., etc. But there is no word about why it happens! So, you have a set of diagnostic tools and drugs (statins, glucophages, etc.) to identify and manage the symptoms (like heart disease, blood sugar, etc.). But there is no clue about what the cause the breakdown/stall. As of now, the best guess is "Act of God". That is sad.

Having said that, till such time this "act of God" is explained by someone down the line, this book is the best of its kind that there is. No, actually, it is the only one of its kind.

I met Derek Van Bever during his presentation to the CFO Rising West Conference in Vegas, Fall 2008. As he made an empassioned speach to awaken the world of business to the cricital issues facing business today, he was able to support his message with the unmistakable facts and findings in Stall Points.

The research is, of course, exceptional, as expected by The Corporate Executive Board, but more importantly, the presentation of the material by Olson and Van Bever is crisp, decisive and functionally valuable to companies of all sizes.

Pay attention to each reason for a Stall! Don't miss or skim over any discipline recommended by the findings of this study. Olson and Van Bever have framed each result in such a way that the concepts are irrefutable.

My conversation with the author ended in my expressing a desire to create a comparison of this study with the findings in Jim Collins' Good to Great Good to Great: Why Some Companies Make the Leap... and Others Don't and Built To Last Built to Last: Successful Habits of Visionary Companies.
Van Bever agreed to read my findings as well!

Stall Points: Most Companies Stop Growing--Yours Doesn't Have To is a well-researched and thoughtful addition to the literature on corporate strategy. The authors studied companies with over a billion dollars in annual sales.

They tell us that they wrote the book for four kinds of readers.

Executive management
Chief strategists of companies
Boards of directors and the governance community
Students of business.

If that's you, pick up a copy of this book. It's as good a book as any I've seen on big company strategy and it concentrates on an area of strategy that is often ignored.

If you're not a member of one of the four audiences, this book is still worth buying. You will need to do a bit of adapting and read with a more critical eye, but there are many good lessons here.

The book is divided into three parts. Part one outlines what we know about the growth experience of large firms.

The authors analyzed the top line growth experience of five hundred companies that have made it into the Fortune 100 sometime in the last fifty years. They found that 87 percent of those companies experienced stall points.

So, you if you're on that ascending revenue curve, it's almost certain that you will stall. And the authors tell us that you're not likely to see the stall coming. That's scary, too, like living in earthquake country.

The final key point of this first part is that once a stall happens, it's very hard to recover. Companies that stall have just a seven percent chance of returning to top line growth.

How can you beat those odds and avoid what pilots call "an unrecoverable spin?" The answer is that if you know what the causes of a stall point are you can do things to prevent trouble. That brings us to part two.

Part two goes into depth on the root causes of growth stalls. The authors identified 42 different root causes. The good news is that the causes cluster into four groups that, taken together, account for more than half of all stalls.

"Premium Position Captivity" is about getting stuck in your own success. These root causes include failing to respond to changing customer preferences or new competition.

"Innovation Management Breakdown" is about a failure in the innovation chain. No new ideas are making it through to commercialization.

"Premature Core Abandonment" is about ways that companies fail to exploit the possibilities of their core businesses. It also includes root causes where a company fails to adapt a successful business model in the face of new competition or changed conditions.

"Talent Bench Shortfall" is about a failure to find, develop, and retain the people you need to keep growing. The emphasis here is on executive and technical talent.

There's good news in this part. Those key root causes are all things that are under management control. The authors include a self-test for each so you can see if your company is starting to fly some "red flags."

Finally, part three covers avoiding (or recovering from) growth stalls. The authors do an excellent job of presenting general advice and under-girding it with practical how-to. You may have to adapt some of the how-to for your, specific situations, but it's refreshing for "big picture" authors to get to this level of detail.

There are two chapters in this part that filled with good advice that need to be taken together to be most effective. The first one is about testing assumptions. Bad assumptions can put you on the wrong road, going in the wrong direction and using the wrong map.

Combine the how-to advice on testing assumptions with the advice on mapping the future. Those two activities are often presented as if they were two steps in a process, but they're actually intertwined threads.

In addition to the basic book material there are five excellent appendices. They cover the details of the study and methodology and give even more specifics about the book's key points.

If you are part of the four audiences that the authors wrote for, people involved with or students of strategy, governance and growth in large companies, buy this book. The sooner you buy it and read it, the sooner you can put the lessons to work.

If you're in a smaller company, buy this book anyway. You'll have to do a bit of adapting and modifying, but there's value here for you, too.

Buy the book and read it. You will not be disappointed.

Most books on strategy take the same predicable process-oriented view and don't have much new to offer. This book is remarkably different. Based on hard research of the fortune 500 over the last 50 years, including interviews with management to find out what worked, what didn't, and what they should have don't differently, Stall Points offers insights and actionable recommendations for improving strategic management for mid- to large size companies. There are also many small recommendations for where to focus energy and effort to get the biggest return and the trade-offs among the most common approaches.

A must read for business leaders, MBA, and Business School teachers.