Exponential OrganisationsLeadershipPurposeful Organisations

Company policies increase the risk of failure

By September 16, 2020 No Comments

Company policies increase the risk of failure

That’s exactly what Netflix founder eloquently explains in his new book, No Rules Rules – Netflix and The Culture of Reinvention.

And the premise is so simple, it’s hard not to agree.

The logic goes as follows…

Why do successful companies fail?

 

The vast majority of firms fail when their industry shifts.

Kodak failed to adapt from paper photos to digital.

Nokia failed to adapt from flip phones to smartphones.

A.O.L. failed to adapt from dial-up internet to broadband.

And my own first business, Pure Software, could not adapt to changes in its industry either because our company culture wasn’t optimized for innovation or flexibility.

 

What does this have to do with internal policies?

 

I started Pure Software in 1991.

At the beginning, we had a great culture.

We were a dozen people, creating something new and having a blast.

Like many small entrepreneurial ventures, we had very few rules or policies inhibiting our actions.

When the marketing guy decided to work from his dining room because it “helped him think” to be able to pour himself a bowl of Lucky Charms cereal whenever he felt the urge, he didn’t have to get permission from management.

Then Pure Software started to grow.

As we hired new employees, a few did stupid stuff, leading to errors that cost the company money.

Each time this happened, I put a process in place to prevent that mistake from occurring again. For example, one day our sales person at Pure, Matthew, traveled to Washington, D.C., to meet with a prospective client.

The client was staying at the five-star Willard InterContinental Hotel, so Matthew did too . . . at $700 a night!

When I found out, I was frustrated. I had our H.R. person write a travel policy outlining how much employees could spend on airplanes, meals, and hotels, and requiring management approval to go beyond a specified spending limit.

Policies and control processes became so foundational to our work that those who were great at coloring within the lines were promoted, while many creative mavericks felt stifled and went to work elsewhere.

Then two things occurred. The first is that we failed to innovate quickly.

We had become increasingly effective and decreasingly creative.

In order to grow, we had to purchase other companies that did have innovative products. That led to more business complexity, which in turn led to more rules and process.

The second is that the market shifted.

To survive, we needed to change. But we had selected and conditioned our employees to follow process, not to think freshly or shift fast. We were unable to adapt and, in 1997, ended up selling the company to our largest competitor.

And in a nutshell, that’s it.

You have probably experienced plenty of stories of staff abusing their companies offerings or making daft mistakes.

But how many of these examples actually brought down the organisation?

Organizations fail because they fail to adapt to industry trends.

So instead of looking to introduce more ‘control’ in your organisation take a step back and consider what the ‘real’ cost will be.

It could be fatal.

Perhaps it already is.

 


 

The quotes were taken from the Freakonomics podcast, What If Your Company Had No Rules, featuring Reed Hastings.

Col

Author Col

The business models that made organisations successful are now becoming their biggest threat in an exponential world. I help incumbents understand these threats and more importantly the changes they need to take to survive and thrive the 4th industrial revolution.

More posts by Col

Leave a Reply