Note: This table is designed to show that great companies can fall even if engaged in energetic and ambitious activity, thereby undermining the hypothesis that all great companies fall because they become complacent. In fact, as this table illustrates, ten of the eleven great companies in our analysis fell despite showing behaviors contrary to complacency.
Addressograph, Stage 2: 1956–1971
• Highly cognizant of the threat from Xerox, merged with Charles Bruning Co. to better compete. Launched the Bruning 3000, but the product failed.186
• Developed a duplicator + copier (AMCD-I), but the product never made it to market because it lacked two-sided capability, encountered production snags, and faced competition from other internal products.
• Launched a crash program to develop new products, releasing twenty-three new products in three years.187
Ames, Stage 2: 1982–1988
• Grew by making a series of significant acquisitions.
• Moved aggressively from a rural focus to a more urban focus.188
• Embarked upon experimental ventures in stationery, variety, and craft and hobby stores.
• Acquired Zayre department stores, with anticipation to more than double the size of the company.
• Multiplied sales five times in five-year period ranging from 1983 to 1988.189
Bank of America, Stage 2: 1970–1979
• Made a huge push internationally. In the 1960s, moved from having fewer than 20 to more than 90 international branches, then from 1971 to 1977, increased assets in overseas branches and subsidiaries by more than three times. Decentralized authority for international lending so as to increase entrepreneurial growth in foreign markets.190
• Committed to action, CEO A. W. Clausen stated, “Our keyword must be ‘action.’ . . . Our mistakes must be the mistakes of decision, not the worse mistakes of indecision itself.”191
• Launched a venture capital partnership for high-risk, direct investments in small technology companies.192
• Doubled total assets from 1970 to 1974, then nearly doubled them again from 1974 to 1979.193
• Transformed BankAmericard (which it invented) into the ubiquitous Visa card.194
• In the late 1970s, significantly increased fixed-rate mortgages, agricultural lending, construction lending, and loans to high-risk countries in Latin America and Africa.195
Circuit City, Stage 2: 1992–1997
• Made significant commitments for growth. Stated in 1996 that it aimed to more than double revenue to $15 billion by 2000. Anticipated growing to 800 Circuit City Superstores by 2000, an 80 percent increase over 1997.196
• Multiplied revenue 2.7X (from $2.8 billion to $7.7 billion) in five-year period from 1992 to 1997, with an average growth rate of 22 percent per year.
• Committed to building CarMax as an exciting new business. By 1997, CarMax had grown from zero to $510 million in revenue. Issued $412 million equity in 1997 to fund growth, with the goal of expanding to more than 80 CarMax stores by 2002.197
• Began development of Divx, a new home video technology that would allow for a no-return, rental-like system for home movie viewing.198
HP, Stage 2: 1992–1997
• Multiplied revenue 2.6X (from $16.4 billion to $42.9 billion) in five-year period from 1992 to 1997, resulting in faster average growth than that achieved in the 25-year period from 1966 to 1991.199
• Accelerated new product development. By 1993, 70 percent of HP’s orders came from products introduced in the previous two years, up from 30 percent a decade earlier.200
• In 1996, picked as the “Best Performing Company” in America by Forbes, edging out GE, Johnson & Johnson, and Intel. The article was titled, “Top Corporate Performance 1995: ‘Boy Scouts on a Rampage.’”201
• CEO Lew Platt waged war on complacency and built HP for innovation. “Fear of complacency is what keeps me awake at night,” he said. “You must anticipate that whatever made you successful in the past won’t in the future.” Platt believed that the best defense was preemptive self-destruction and renewal. “It’s counter to human nature, but you have to kill your business while it is still working,” he said. “My job is to maintain an environment that encourages healthy paranoia.”202
• Dominated the printer industry with an Intel-like cycle of brutalizing competitors: come out with the next generation of better products just as your competitors catch up to your current generation, devastate your competitors with ferocious pricing, and then repeat the cycle, fast. Applied this model to personal computers and moved from #11 to #3 in four years.203
• Made a significant move into e-commerce by buying Verifone.204 Advanced the concept of an “information utility” to link digital devices with the ease of plugging appliances into a wall and moved into digital photography.205
Merck, Stage 2: 1993–1998
• In 1993, acquired Medco Containment Services, Inc., for $6 billion (on a 1992 revenue base of $9.7 billion). Medco was acquired to control distribution in profit-hostile environment.206
• Established #1 business objective as being a top-tier growth company. Planned to achieve growth by investing in fundamental R&D for potential breakthrough drugs, achieving the full potential of managed pharmaceutical care, and preserving the profitability of the core pharmaceutical business.207
• Maintained scientific advancement, on track to patenting more new compounds than any other pharmaceutical company.208
• Instituted significant organizational change, creating “worldwide business strategy teams,” each focused on key diseases, to drive product and market development.209
Motorola, Stage 2: 1990–1995
• Sought to double in size every five years.210 From 1990 to 1995, grew revenue from $11 billion to $27 billion.
• Positioned itself strongly for trends: wireless, cellular, electronics, and globalization, with farsighted investments made in China (by 1996, had the largest stake in China of any U.S. company).211
• Took Iridium satellite-communications project into full development (spun it into separate LLC in 1991).212
• Made major bet on PowerPC microprocessor (in partnership with IBM and Apple) to challenge Intel.213
• Demonstrated high levels of innovation, increasing its patents from 613 in 1991 to 1,016 in 1995.214
• Heralded as “The Company that Likes to Obsolete Itself.”215
• Pioneered Six Sigma quality, one of the first companies to pursue 3.4 defects per million in its products.216
• Encouraged a combative “cult of conflict” to ensure that the best technology and market ideas won.217
Rubbermaid, Stage 2: 1980–1993
• Increased revenues more than six times and earnings nearly fifteen times from 1980 to 1993, at one point generating forty consecutive quarters of earnings growth.218
• Created an innovation machine. By 1991, generated more than 30 percent of its revenue from products introduced in the previous five years.219 In 1992, introduced on average one new product every day, 365 days a year.220
• In the early 1990s, aimed to add one new market segment every 12 to 18 months.221
• Cultivated an intense drive for growth and self-reinvention. “We have to reinvent ourselves continuously.”222 “Our major growth objective is to double our sales, earnings, and earnings per share every five years.”223
Scott Paper, Stage 2: 1962–1970
• Instituted diversification program to fuel new growth. Bought a textbook paper manufacturer, plastic-coating company, and company that made teacher training kits for K–12 education. Launched a disposable-products company, with creative ideas like disposable paper dresses and graduation gowns. Made a move into resorts and poolside/patio furniture.224
• Adopted a brand management model, with brand managers responsible for their own products’ earnings and for their own research, manufacturing, advertising, and sales—a significant change from the previous approach.
• At the same time, Scott did not respond aggressively to the threat from P&G during the early 1960s (some evidence indicates that it had a “genteel” culture that lacked a fighting spirit).225
Zenith, Stage 2: 1966–1974
• Achieved ambition to become #1 in U.S. black-and-white television market by 1959.226
• Achieved ambition to overtake RCA to become #1 in color televisions by 1972.227
• Made a big bet on the visionary idea of pay TV. Didn’t succeed, largely because Zenith was nearly two decades ahead of its time.228
• From 1970 to 1973, invested in significant capacity expansion, with new plants in Taiwan, Hong Kong, along the Mexican border, and elsewhere.229
• Poured money into automating plants in the United States as way to compete in tough global economic conditions.230
• Developed a reputation for being a fast follower in new technologies; once a new approach had been proven, would aggressively adopt it.231
Cases Demonstrating Significant Complacency A&P, Stage 2: 1958–1963
• Became known as the “Hermit Kingdom,” with a reputation for isolation and resistance to any change. “You can’t quarrel with a hundred years of success” became a common internal refrain.232
• Forty percent of founder stock allocated to Hartford Foundation, which demanded high dividends. From 1958 to 1962, turned record-high profits into record-high dividends, paying out more than 90 percent in dividends.233
• Invested less in new stores than competitors. In 1962, “with 33 percent of the volume and 36 percent of the total number of stores, expended only 18 percent of the capital investments in stores made by the top ten chains.”234
• Allowed stores to fall into disrepair. Stuck with an outdated store format, while competitors began investing in larger store formats that would eventually become superstores.235