Models of Corporate Inertia

By Pedro do Carmo Costa

In his speech at the launch of COTEC Portugal, the Business Association for Innovation, President Jorge Sampaio declared, to the enthusiastic applause of the assembled business leaders: “To make Portugal a nation of innovators and innovation has to be one of the country’s prime objectives, a goal shared between different generations today.”

Back in their company bunkers, how many of the 150 business people present at the launch took any initiative to foster innovation in their companies? Half? Ten? Two? None?

Whatever the answer, there is clearly a huge gap between knowing and doing. This knowing-doing gap can also be described as inertia. It is just like knowing we have to lose weight and not doing anything about it…

Why is there this great inertia in Portuguese business and industry? Strategos, the international consultancy firm focussed on questions of innovation, with experience in different sectors and various geographical regions, points to four main reasons:

1. The tendency to cling to initial ambitions: Many companies aspire to no more than reaching the goal mapped out when they were founded. As, in many cases, they have already attained this, there ends up being no gap between expectation and performance. The difference is simply zero! As such, there is a general sense of contentment about current performance and the total lack of any stimulus for innovation. This may be summed up by the Portuguese saying “Someone born to be a lizard will never manage to be an alligator…”
2. Abundance of resources: Curiously, the abundance of resources in this case is an impediment to innovation. It is because in these organisations there is a perception that the resources will buy us a future. In other words, even if new business models emerge in the market, the abundance of resources will “buy and incorporate these models, and so we don’t need to worry about creativity. So creativity is replaced by resources. Nothing could be further from the truth, if we think of examples such as IBM (which has been overtaken by models like Dell) and Nestlé (the leader of the world coffee trade, which failed to take the billionaire opportunity seized by the Starbucks chain).
3. Optimised business model: A classic example of the Brazilian saying “the winning team doesn’t change”. Many business models, based on valid formulas and efficient processes, suffer from an innovation deficit because there is a belief that if it’s not broke, don’t fix it. These models and these companies are extremely vulnerable to new rules and new entries which act as rule breakers. Look at the example of the fine tuned British Airways, which is today worth less than Easy Jet – the company which redefined the way we travel.
4. Success which confirms strategy: Success may cause blindness due to the belief that, if a given business model is continuously fruitful, it is because the strategy behind it is undoubtedly correct. In this case, the momentum is confused with leadership. To fail to feed strategy with new insights, new perspectives, is to shoot ourselves in the foot in the medium term, because it stops us from reinventing this leadership. A recent example of this is Jean-Marie Messier, former CEO of Vivendi, who beat the speed record for moving from fame to infamy.

Four causes of inertia which prevent us from innovating and which may be categorised – the first two – as an inability to escape the past, and – the last two – as an inability to reinvent the future. It seems to us that the only way to break out of these circles is through strong and determined leadership, focussed on creating a future for its organisations.