The Real Reasons Why Companies Fail

and how to transform them fast...

You put a frog in a bowl of water and start heating it slowly. At first, the frog enjoys the warmth. As the temperature rises, it starts adapting to the rising temperature. You turn the heat up. The frog struggles to adjust. You turn the heat up more. Now the temperature becomes unbearable. The frog finally decides to jump out. But it’s too late. It has spent all its energy adapting to the boiling water. Unable to adapt any more, it dies.

What actually killed the frog? Was it the boiling water or the frog itself for its reluctance to act when it first sensed the heat?

Several large companies die the same way.

WHY COMPANIES FAIL

Blockbuster was once the top video rental chain, known for its stores where people rented DVDs. When the market shifted toward digital streaming, Blockbuster had an opportunity to go digital. Despite clear signs that consumer preferences were changing, the company stuck to its traditional video rental model believing its traditional rental model would stay strong forever. Reluctance to change itself allowed Netflix to take over the market – leading to Blockbuster's bankruptcy in 2010.

Kodak faced a similar fate. It was a pioneer in film photography. It even invented the first digital camera in 1970s. However, the company was reluctant to fully embrace digital technology because it feared losing its profitable film business. This hesitation allowed competitors to dominate the digital market, and by the time Kodak tried to catch up, it was too late. The company eventually filed for bankruptcy in 2012.

The list goes on.

Nokia was a leader in mobile phones but did not focus to shift to smartphones. It still sticked with its outdated software. Meanwhile iPhones and Android took over. By the time Nokia attempted to catch up with its partnership with Microsoft and the use of the Windows Phone operating system, it was too late. The market had already been captured by iOS and Android. Though Microsoft acquired Nokia’s phone business in 2013, but it failed and was shut down by 2016.

Other iconic brands faced similar downfall. Polaroid couldn’t transition to digital photography and filed for bankruptcy in 2001. Toys “R” Us and Borders failed to adapt to the rise of e-commerce, losing out to online giants like Amazon and ultimately going bankrupt. BlackBerry, once a dominant force in mobile phones, couldn’t keep up with the smartphone revolution, and Yahoo missed its chance to innovate, leading to its acquisition by Verizon in 2017.

The examples highlight a crucial lesson: companies must transform quickly at the first sign of market shifts. Simply trying to adapt or adjust to a changing marketplace is not going to help survive.

So, what should be the transformation roadmap?

Before we provide a roadmap let us understand how transformation process has evolved over time.

EVOLUTION OF TRANSFORMATION

Technology alone doesn't drive transformation; its impact depends on aligning with core business objectives. To understand future strategies, let's revisit key milestones in management science and corporate strategy.

1940s: FOCUS ON INDUSTRY CYCLES AND CREATIVE DESTRUCTION

In the early 20th century, businesses aimed to predict and control industry cycles, inspired by economist Joseph Schumpeter's concept of "creative destruction." This theory emphasized that industries must continually innovate to replace outdated models. For example, the automotive industry, led by companies like Ford, revolutionized production methods, setting the stage for modern manufacturing.

1950s: THE RISE OF CORPORATE STRATEGY

The 1950s marked a shift toward systematic business planning, with companies focusing on long-term corporate strategy. Firms like General Electric formalized strategic processes to set clear goals, assess market opportunities, and allocate resources efficiently.

This shift laid the groundwork for sustainable competitive advantages through structured planning.

1960s: INTRODUCTION OF SWOT ANALYSIS

The 1960s popularized SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) by Albert Humphrey, providing a framework for strategic decision-making. The philosophy was to integrate internal capability S/W with external O/Ts.

Companies like IBM used this approach to assess their internal capabilities and external market threats, allowing them to adapt to technological advancements and maintain their market dominance.

1980s: COMPETITIVE ADVANTAGE AND PORTER'S THEORIES

The 1980s saw the emergence of Michael Porter's theories on competitive advantage, emphasizing "either be cheaper or be better." This era was defined by companies like Walmart, which leveraged cost leadership, and Apple, which focused on differentiation through design and innovation. Porter's frameworks, like the Five Forces Model, became essential tools for analyzing industry competition.

1990s: DISRUPTION AND THE INNOVATOR’S DILEMMA

In the 1990s, Clayton Christensen introduced the concept of "disruption" in The Innovator’s Dilemma (1997). His theory explains how new technologies or business models that start in niche markets can eventually disrupt established industries.

Christensen illustrates this with examples like Digital Equipment Corporation and Xerox, which drove disruptive innovation by creating agile, smaller divisions within their organizations. He also highlights how start-ups like Netflix initially targeted niche markets and later disrupted giants like Blockbuster.

This era emphasized the need for established firms to embrace disruptive innovation to remain competitive, as seen with Amazon's rise in e-commerce.

PRESENT DAY: EMBRACING DIGITAL, SUSTAINABILITY, AND ETHICAL TRANSFORMATION

Today, innovation must be fast and aligned with broader values like sustainability and ethics. Companies like Tesla are leading this charge by rapidly commercializing electric vehicles while focusing on sustainability.

Additionally, firms like OpenAI and Microsoft have leveraged AI and cloud technologies to build resilient, customer-centric operations. The current focus is on balancing rapid technological adoption with ethical considerations to ensure long-term success.

These shifts emphasize the need for companies to adapt their strategies to changing market conditions by embracing technology and innovation.

The transition from traditional planning to agile, data-driven decision-making is reshaping the business landscape.

Now let us outline the transformation roadmap.

TRANSFORMATION ROADMAP IN CURRENT DIGITAL ERA

Following the above trend on the transformation strategies in the current digital era, below we outline a roadmap for a successful digital transformation.

DEFINE A CLEAR STRATEGY

Before starting a digital transformation, evaluate where your business stands in terms of technology, processes, and customer experiences to identify areas for improvement. Once you have a clear understanding, define specific outcomes you want to achieve, such as enhancing customer experience, improving operational efficiency, expanding to new markets, or driving innovation. Setting clear goals will help guide your transformation strategy.

Netflix successfully transformed from a DVD rental service to a global streaming platform by embracing digital technology and using data to tailor content to viewer preferences. Similarly, Amazon evolved from an online bookstore into the world’s largest e-commerce platform, leveraging cloud computing, big data, and AI to optimize operations and innovate across industries.

FOCUS ON CUSTOMER-CENTRICITY

A customer-centric approach is essential for successful digital transformation. Businesses must understand their customers’ needs and pain points, focusing on delivering personalized experiences, seamless interactions, and innovative products or services.

For example, Sephora uses customer-centric tools like its "Virtual Artist" app, which lets users try on makeup virtually using augmented reality. Sephora also uses influencer marketing through which shoppers can visualize the products' use by people they follow and trust.

This goes a long way enhancing the shopping experience and driving sales.

TECHNOLOGY & INNOVATION

Digital transformation is not just about adopting new technology; it’s about reshaping your company’s mindset and processes. Businesses should leverage emerging technologies like AI, machine learning, cloud computing, IoT, and data analytics to optimize operations, enhance decision-making, and improve customer experiences.

It is important that technology should follow strategy.

However, many companies do it the reverse.

They select a technology and then let the business strategy follow that.

The result is miserable.

So have a great strategy and select the technology that supports your strategy.

One example of a company that successfully aligned technology with its strategy is Apple. It successfully aligns its technology with its strategy by focusing on seamless, user-friendly experiences through high-quality hardware and software integration, creating a cohesive ecosystem that supports its customer-centric vision and drives brand loyalty.

Again, technology alone is not enough. It must be backed by a culture of innovation and adoption. We cannot undermine the importance of cultivating a culture that embraces change, encourages experimentation, and promotes continuous learning.

PROCESS OPTIMIZATION & AUTOMATION

Process optimization and automation play a key role in digital transformation by streamlining workflows, reducing manual tasks, and increasing operational efficiency. By optimizing and automating repetitive processes, businesses can minimize errors, save time, and allocate resources more effectively.

This allows companies to focus on more strategic activities, improve decision-making with real-time data, and enhance customer experiences.

Ultimately, process optimization and automation drive cost savings, productivity, and innovation, helping businesses adapt quickly to changing markets and stay competitive.

A great example is General Electric (GE), which implemented automation in its manufacturing processes, especially in its aviation division. GE uses predictive maintenance technology to monitor equipment health, automating the process of identifying potential issues before they cause downtime.

This not only improves operational efficiency but also reduces maintenance costs and enhances product reliability, supporting GE's digital transformation efforts.

COLLABORATION

Collaboration is crucial in digital transformation as it brings together diverse teams, ideas, and expertise to drive innovation and efficiency.

By fostering cross-functional collaboration between departments such as IT, marketing, operations, and customer service, businesses can create more integrated solutions that align with both customer needs and business goals.

Collaboration also encourages knowledge sharing, faster problem-solving, and the ability to quickly adapt to new technologies or market changes.

For example, Microsoft successfully shifted from a software company to a cloud services provider by fostering collaboration across teams and partnering with other tech providers, leading to its success in cloud computing.

Similarly, Toyota’s collaboration between engineering, design, and technology teams, along with partnerships with tech firms, has helped the company stay at the forefront of automotive innovation, especially with hybrid and electric vehicles.

Without collaboration, any transformation initiative is likely to face internal resistance and will struggle to succeed.

LEADERSHIP

Successful transformation depends on support from all levels of the organization, especially leadership. Leaders must be committed and aligned with the transformation vision.

"Charity begins at home."

To lead successful transformation, leaders must first transform themselves.

They should act as catalysts, creating the right environment for change by fostering collaboration, innovation, and curiosity.

In an ever-evolving world, leaders need to adopt a mindset of exploration—embracing curiosity to see both the big picture (telescopic) and the details (microscopic). They need to remain in present while focusing on the future.

Leadership requires courage to experiment, engage with their teams, and communicate authentically. Trust and a commitment to living core values are essential, even in the face of resistance.

Leaders who embrace emotional intelligence, curiosity, and adaptability can guide their organizations through change with conviction and inspire their teams to innovate and thrive in a rapidly evolving world.

ITERATE & SCALE

Digital transformation is not a one-time event; it’s an ongoing journey of continuous improvement. Leaders suggest starting with small, manageable pilot projects that allow the organization to experiment, test, and learn from real-world results.

These initial projects provide valuable insights and help refine strategies. Once a pilot initiative proves successful, it can be scaled across the organization, ensuring broader adoption and impact.

This iterative approach minimizes risk, fosters agility, and enables leaders to fine-tune their strategies before full-scale implementation, ultimately driving sustainable transformation across the business.

Spotify and Starbucks provide strong examples of iterating and scaling during digital transformation. Spotify began with a small, localized pilot of its music streaming service, gathering feedback to refine features before expanding globally.

Similarly, Starbucks launched a mobile app with basic ordering functions, then enhanced it based on customer feedback by adding features like loyalty rewards and personalized offers.

Both companies used small-scale pilots to test, refine, and optimize their digital strategies before scaling them across their businesses, ensuring greater success and customer engagement.

DATA ANALYTICS & AI/ML

A data-driven approach is essential for digital transformation, enabling businesses to make informed decisions, optimize operations, and enhance customer experiences.

Several success stories of diverse organizations emphasize the importance of using data, along with advanced technologies like AI/ML, to drive efficiency and personalization.

For example, Walmart uses data analytics powered by AI/ML to manage inventory, predict demand, and optimize supply chains, ensuring products are always in stock.

Uber leverages real-time data and machine learning algorithms to improve ride matching, optimize routes, and adjust pricing dynamically based on demand.

By integrating AI/ML with data, companies can enhance operations, provide personalized services, and stay ahead in a rapidly evolving market.

SUMMARY

In the rapidly evolving digital era, relying on gradual adaptation is much like the frog in the boiling water.

Neither does Lamarck's theory of adaptation.

Companies must act swiftly and strategically to stay ahead.

As Mark Twain once said, “If you tell the truth, you don’t need to remember anything.”

Similarly, if you have a clear transformation strategy and vision, communicate it effectively to all stakeholders, and everything else will fall into place.

Businesses must develop a digital transformation strategy that is not only forward-thinking but also practical and aligned with their long-term goals.

Such a robust strategy serves as the guiding principle for every aspect of transformation—whether it's collaborating with stakeholders, selecting the right technologies, or optimizing business processes.

By staying committed to a well-defined strategy, companies can successfully navigate the complexities of digital change and achieve sustainable success.

Let me know what you think.