Why Well-Run Companies Continue to Fail

By Alex Slawsby and Dan Ostrower |  September 13, 2021

In his seminal book The Innovator’s Dilemma, Clayton Christensen described how smart, capable leaders frequently guide their companies to failure by executing on all of the best practices taught in top business schools. 

Alex Slawsby, Co-founder, Derisk and Strategic Advisor, InnoLead

In the 24 years since the book was published, Christensen and many others uncovered a long list of reasons for why well-run companies can flounder. Despite these insights — and the emergence of many new frameworks and methodologies — leading companies now lose their leadership positions more quickly than ever before. We know why well-run companies fail. The key question we must now answer is: “Why do they keep doing it?”

The problem is execution of the playbook that you might call “Maximize Today While Building for Tomorrow” — and the very human qualities of the very real people charged with doing so. Corporations are collections of individuals who largely seek to protect their own self-interests. Good ideas die and bad ideas frequently reach the market because there are people who stand to benefit from each outcome. Well-run companies continue to stumble because there are people within their walls who want them to fail.

Now, such intentions are rarely so Machiavellian. If a manager knows that their value to the company might be questioned if they (rightfully) kill a particular project, why would they kill that project? If a leader knows they lack the skills to guide the company through a (needed) transformation, why would they set that transformation in motion? When change is necessary, company interests and personal interests clash all too often.

Such misalignment almost always hides in the shadows as well. Even when the future is unknowable, it’s rarely a good thing for employees to make statements such as “I’m not sure,” “I’m concerned,” or “I’m conflicted.” Most meetings perfectly illustrate what’s known as the “hidden profile” problem. Poor decisions get made, in part, because there are few incentives for people to share new, disconfirming information or to share sentiment that runs counter to that of the group (i.e. negative vs. positive or positive vs. negative). That’s especially important in periods of uncertainty and conflicting sources of information, like the one we’ve been living through since early 2020.

The good news is that this isn’t some unachievable utopia. More and more senior leaders are reshaping their organizations to be flatter and more collaborative. 

These challenges must be addressed to reduce the frequency with which well-run companies launch products that flop, race toward dead ends, and miss important shifts in their business. Leaders and managers need to consider their own interests and how they undoubtedly conflict — at least in some way — with the interests of their organizations. Are there steps they can take to better align those interests? If they preach the importance of things like psychological safety, are they willing to do what it takes to role model those values? If they are unwilling to do so, are they comfortable with the inconsistency — or is it time to consider new opportunities?

Dan Ostrower, Co-founder, Derisk and former CEO, Altitude

Imagine an organization in which leaders practice — and reward — honesty and transparency, even if that means openly discussing uncertainty and anxiety. Imagine an organization that encourages — and rewards — thoughts-in-progress and well-reasoned challenges at any level. Imagine an organization in which all voices — not just the most senior, most loud, or most confirmatory — are heard.

The good news is that this isn’t some unachievable utopia. More and more senior leaders are reshaping their organizations to be flatter and more collaborative. Good practices such as servant-leadership and distributed leadership are becoming mainstream. New tools and technologies are transforming organizational dynamics management from an art to a science. Most importantly, all involved are beginning to acknowledge that the old ways of doing things just aren’t good enough.

In the end, well-run companies will survive when their employees do not need to check their humanity at the door.

Five Practices that Will Help Your Organization Avert Painful Failures

Get everyone agreed on well-defined objectives. What would happen if you asked everyone on your team questions like: “Who is our customer?”, “What problem are we trying to solve?”, “What is it about our solution that will most delight our customer?”, or “What are the greatest risks to our success?” In our experience, even within a “close knit” team, you will find little consistency in their answers. Before you can move forward as a group, you need to make sure that everyone is aligned on the basic definition of what you are doing, why, and what you expect to happen. You must explicitly define, communicate, and record those definitions. Otherwise, an unproductive game of “telephone” will challenge productivity.

Focus on assumptions, not certainty. No one can predict the future. So why do we ask teams to come up with detailed forecasts filled with numbers that are definitely wrong? It is far more productive to quickly establish hypotheses of what might happen — or what needs to happen to be successful — and then to explore how to produce real evidence that informs you if the underlying assumptions will prove true or not. What you believe and why needs to be at the center. And leaders need to make it clear that false precision will no longer be rewarded.

Accept that you will be wrong. Employees within most organizations know that making the “right” decisions is critical to advancement. Yet we know that decisions about the future will always be wrong, in at least some way. It’s therefore incumbent upon leaders to emphasize how “being wrong” is OK if teams reach that conclusion intelligently — if they get there as quickly and cheaply as possible, while minimizing fallout and maximizing learning. In a “we must be right” organization, you rarely want your views written down, as that leaves little room for you to maneuver. In our experience, in an organization where “intelligently getting to wrong” is rewarded, employees are far more willing to write down their thinking as part of an on-the-record learning journey.

Always have a “10th person.” In the movieWorld War Z, Brad Pitt’s character encounters an Israeli Mossad intelligence agent who shares the importance of committing to “devil’s advocacy.” The agent explains that each time nine members of the 10 member Israeli security council align in their thinking, the 10th member of the council must do whatever they can to prove the other nine wrong. In most organizations, few employees will take the risk of sharing views contrary to those of the group. Leaders that explicitly require — and reward — those who take 10th person positions create an environment in which people are much more likely to speak up if they disagree.

Lead with humility. Your team will be stronger if everyone on it feels comfortable communicating their knowledge, their beliefs, their questions, and their humanity. It’s up to you to create an inclusive environment where that is possible. This means not just advocating for “assumption-first, get-intelligently-to-wrong, share-what-you-really-believe” practices, but role modeling those practices yourself. Share when you are uncertain and when your instincts prove wrong. Encourage your team to challenge your thinking. Make sure that everyone joins conversations either completely in-person or completely virtually. Take the time to slow down and praise someone who shows courage by saying or doing the correct, but difficult, thing. Try not to pass up any opportunity to make it clear how success requires us all to be human.


Alex Slawsby is Co-founder of the startup Derisk, a Strategic Advisor to InnoLead, and a former Director of Innovation at Embraer. He spent seven years as a team member at Innosight, the consulting firm founded by Clayton Christensen. Dan Ostrower is Co-founder of the startup Derisk and former CEO of Altitude, an innovation and design agency acquired by Accenture. He spent five years as a Strategy Consultant at Monitor Company and has over a decade of experience leading venture-backed startups.

Featured photo by Adrian Swancar from Unsplash.