Araya Messa

Colorado Technical University

Instructor:  Dr Cynthia Calongne

 

April 17, 2021

 

Unit4-DB3

In a business world, the most common business incidence is when big companies face big changes around them that make them fail unfortunately (Sull, n.d). This may be due to so many reasons such as being unable to preserve themselves against competitors equipped with new products, strategies, technologies, advanced success models. Such huge changes may make them watch their sales and profits decline hugely, their best employee and customers leave, and their stock price value flips down. After so much hardship rounds of downscaling and reform some of them eventually achieve to recover—while many don’t.

The question why decent companies eventually go wrong is usually assumed due business paralysis. However, Sull (n.d) did find insignificant evidence of paralysis. Those managers with a total paralyzed or beleaguered company generally identify the threat very early, analyze its consequences carefully, and provide a set of initiatives in response. According to Sull (n.d), the problem is not an incapability to act but an incapability to take proper action. The most blamed reason for this failure is a common company behavior called inertia or an active inertia as termed by Sull (n.d). Corporate inertia or active inertia is a term used to define an established company which keeps rigid in its thinking and actions instead of being open to any changing industry and company dynamics Kokemuller (n.d). It's easy for company leaders to become satisfied when things are going well though usually are not. Sticking in past formulas, strategies and action that brought success previously and trying those to get out of complex challenges when encountered rather make them immerse into deep unswimable pool.

To see very relevant example here let’s consider the Firestone Tire and Rubber Company (Sull, n.d). These company was a leading player in its industry but failed to meet the challenge of change. It was not due to its leaders didn’t take any action, but the reason was because they didn’t act properly.

According to Sull (n.d) Firestone entered the 1970s. It had shown very solid growth for 70 years in a row. During those years it managed to be one of the topes needed in the US tire industry alongside Goodyear. Firestone’s managers had unambiguous vision of their business strategy and positioning. They were set to see:

·       The Big Three Detroit automakers as their key customers,

·       Goodyear and the other leading U.S. tire makers as their competitors, 

·       their challenge as simply keeping up with the steadily increasing demand for tires.

·       they were keeping their good culture to treating customers and employees as part of their family and made great relationship with the top executives of the big automakers. 

·       the Firestone country club was open to all employees, regardless of rank any rank

·        they created aggressively loyal managers, immersing them in the company’s family values and in its worldview.

·       their company’s operating and capital allocation processes were designed to exploit the booming demand for tires by quickly bringing new production capacity online. Their formula in the capital-budgeting process, for instance, was that frontline employees identified market opportunities and interpreted them into proposals for investing in additional capacity.  Middle managers then selected the most hopeful proposals and presented them to top executives, who tended to speedily approve the middle managers’ recommendations.

Those unambiguous business design strategies and formulas were clear that paved Firestone to a great success for seven decades. However, everything became upside down with no time after a French Company called Michelin which manufactures a radial tire introduced to the U.S. market (Sull, n.d). Based on design modifications, radial tires were found to be safer, more elongated age, and more economical than traditional bias tires. They had dominated European markets, and Ford declared in 1972 that all its new cars would have radials. That clearly showed that the radial tire market also began dominating the U.S. market. Firestone was not too worried about arrival of radials. However, after the radials became so much popular rapidly, and its managers saw the coming of radials largely, and forecasted radials would be accepted by the US automakers, it swiftly acted. It financed nearly $400 million in radial manufacturing, built new tire plants dedicated to radial tires and quickly converted several existing factories (Sull, n.d). Although they did all that budget spending and built new factories for radial tires, they did that keeping their old strategies, values, processing formulas that they used in the past for their old bias tire factory. They also converted their plant to radial manufacturing plant rashly. That caused them to have a lower quality standard, lost their customer relationships, and became highly ineffective due to their mode of active inertia.  By 1979, Firestone became in big shock: Its plants were running weak at 59% of capacity, renting warehouses to store unsold tires, it was plagued by costly and embarrassing product recalls, and its domestic tire business had burned more than $200 million in cash (Sull, n.d).

In summary, company need to know the sociotechnical applications in their business, that is they need to give special attention in order to use their processes, strategies, values in the way that makes sense for their overall business profit.  The driving forces that play here are aspiration of owning sustainable business when there is unforeseen hardships and maintain customer or societal satisfactions of the service that the business provides.

References:

·       Sull, D., (n.d), Why Good Companies Go Bad. https://hbr.org/1999/07/why-good-companies-go-bad

·       Neil Kokemuller, N., (n.d).  What Is Corporate Inertia? https://smallbusiness.chron.com/corporate-inertia-61349.html