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Success is a reliable predictor of failure
October 2010
by Peter T. Kissinger  |  Email the author
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Our current economic malaise reminds me of the old Churchill quote, "Success is never final." He sure proved that point over and over again, most recently with the consequences of his role in reorganizing the Middle East after WWI. The more complete quote is, "Success is never final. Failure is never fatal. It is the courage to continue that counts."
 
These days, inspiring quotes are most welcome. But why do we cycle from success to failure, and to what extent does the former presage the latter?    
 
Success puts most of us off guard. We enjoy the moment, or even a decade, but can be very complacent with respect to its likely continuance. We speak of "bubbles" and want growth to feed more growth. Some even speak of a bubble in higher education. The words "not sustainable" have entered the popular lexicon in many contexts. Apparently, we are now more sensitive to our limitations.   
 
Two of my favorite industries, pharma and medical devices, are clearly suffering as a result of their long run of success. That success was based on decades of innovation addressing unmet medical needs. That innovation justified high margins that afforded more investment in people and infrastructure to keep the process accelerating.   
 
Given that we base our economy on competition (nothing else has ever worked), it is important to not hold back, allowing competitors to get an edge. A herd mentality ensues, and thus a bubble, with too many pursuing the same few objectives. We don't want an industrial policy that would divide up the objectives as was once done with state-owned enterprises in other places. That surely doesn't work. Choices are best made by customers.
 
I like Prof. Clayton Christensen's concept of disruptive innovation, which he has elaborated on in several books (see, for example, The Innovator's Dilemma, Harper, New York, 1997). As an undergraduate student, I was introduced to the Austrian economist Joseph Schumpeter and the concept of creative destruction, which he promulgated in 1942 (see Capitalism, Socialism and Democracy, Harper, New York, 1975). While their observations are not entirely new, these authors gave them a particularly clear expression. Some also see attributes of the challenge in the Hindu god Shiva, but Eastern mysticism is not a subject of my expertise. 
 
Society advances through innovation, and through innovation, the successful and comfortable are threatened. Success indeed becomes a reliable predictor of failure. At very least there is much pain and discomfort. The new idea displaces the established. As innovation has accelerated in our time, even the recently established become vulnerable and may be gone a decade after founding. Sailing ships, steam engines and printing presses with lead type had a longer run. While the principles of creative destruction and disruptive innovation apply more broadly, their role in business is compelling at the moment.   
 
Success breeds complacency and vulnerability to attack. The established infrastructure can lose 90 percent of its value in a very short time. In the process, firms scramble to cut costs to hang on longer. Manufacturing and R/D facilities lie fallow and become assets for metal recyclers. This is a publication all about creative destruction. Many of our readers lost their positions as research and development came under the knife first. The comfortable among us hire, build and issue press releases, assuming an accelerating trajectory that is not to be sustained by hope alone. 
 
As Andy Grove noted in his book of the same title, only the paranoid survive. Garage outfits rarely thrive, but a few do and often rise from adversity, as did Beckman, Hewlett Packard and Disney in the 1930s, a time much tougher than we have today, but one with a much slower response. Some firms have been very resilient, pulling out of a slump and reinventing themselves repeatedly, but not easily and not without much pain. The three firms I just mentioned are excellent examples of this.  
 
Being into life's fourth quarter, I've seen a lot of this firsthand. I've seen UV, fluorescence and electrochemical detectors for liquid chromatography progress from not even existing to achieving some prominence in life sciences to largely succumbing to mass spectrometry, which for two decades was thought by most to be incompatible with aqueous buffers. Polarography has nearly become extinct. Analogous disruption occurred in peptide and DNA sequencing over the last 20 years, and various approaches continue to do battle today. Where are Searle, Upjohn, Parke-Davis, Sterling, Beecham, Burroughs-Wellcome and Marion Labs? Firms that succeed compete with themselves using skunks works and alliances to be ready for what's next. Cost-cutters resist this because the outcome is not assured. Private firms with a longer view are advantaged.
 
Today, creative destruction takes many forms as pieces (especially people) fall off larger firms into the world of startups. On the other end, those startups that prove their concept get gobbled up through mergers and acquisitions. There is very little stability. There is no entitlement and little loyalty. Time constants are such that several generations of disruptive change now occur during a working life of four decades. This is very new and it engenders much pain. It can also be stimulating to those who like to stay in the fight.   
 
We've had our destruction these past few years. There is no better time to stop complaining and start participating on the creative side. Position yourself to catch the next wave. It's on the horizon. Be prepared by paying attention and staying up-to-date.  You are what you know and looking forward counts. Longing for what was is not helpful. Going back to my title, could failure be a reliable predictor of success? For those who gain wisdom like Yoda ("Do, or do not. There is no try."), there is no doubt about it.  
 
Peter T. Kissinger is chairman emeritus of BASi, chairman of Prosolia in Indianapolis and a professor of chemistry at Purdue University. 
 

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