Guest Presenter: Roderic Yapp, Quirk Solutions Associate and Leadership Trainer
It is surprising how few organisations consider Catastrophic Success as a risk to their business and yet so many are affected by it. Catastrophic success is something that goes so well, the outcome is so disproportionately brilliant, that we struggle to keep up with it. This in turn creates significant issues for a company.
When we are delivering our plans or our strategies, most of the time what we are aiming for is success. We tend to think of the spectrum of where we might land as being somewhere from success, through ok, down to failure. But to my mind, there are an additional two bookends to that spectrum – catastrophic failure and catastrophic success.
In our next episode of the Quirk Solutions Podcast Series we discuss the impact of Catastrophic Success in business and how to manage the risk so our strategies and our efforts achieve manageable and real success.
Full Podcast Transcript can be found here:
What is Catastrophic Success?
Today I want to talk to you about Catastrophic Success and the risks implicit within it. Sounds like a bit of an odd phrase to start off with? What do we actually mean by catastrophic success? When we are delivering our plans or our strategies, most of the time what we are aiming for is success. That is, we achieve everything we set out to achieve in the first place and we are getting there with all of the objectives that we laid out for ourselves. Often we end up accepting an ok result because we couldn’t quite achieve all the success that we wanted to. We tend to think of the spectrum of where we might land as being somewhere from success, through ok, down to failure. But to my mind, there are an additional two bookends to that spectrum – catastrophic failure and catastrophic success.
So what do we actually mean by it? Well, catastrophic success is something that goes so well, the outcome is so disproportionately brilliant, that we struggle to keep up with it. This then has implications for us. Very few organisations ever really think this through fully but it is surprising how many have been affected by it. There is a recent LinkedIn article written by Peter Sanchezlooking at Under Armour. The article looks at the way in which marketing promises were not delivered by Under Armour itself. The brand reputational damage that it causes for these brands can be significant. So you have this problem whereby either through marketing or through the interest in your product or through word of mouth or simply through getting the analysis absolutely right within your plan, you hit the ground very fertile and everything that you wanted to achieve is achieved. It’s almost a runaway success. Then the internal workings of your organisation struggle to keep up, i.e. to deliver to the demand.
Catastrophic success and brand reputation
Now, it might well be if you’re like Apple, for example, that’s not so much of a problem, you’ve got people queuing up outside Apple stores to get the very first of the next iteration of their product. And we’ve seen that sort of thing in London and all over the world. But that’s because the product was always functional. It was always delivered in good working order and was reliable. What would have happened I wonder, if Apple had decided actually we really want to keep up with demand and rather than having people queuing up, rather than having people on waiting lists and being frustrated they can’t get hold of our products, we take some shortcuts on the quality assurance within our manufacturing so that we can deliver this volume. Things start to get a little bit shoddy. They start to get rough around the edges. People receive products that don’t really work. All of a sudden the reputation and the damage that that starts to cause an organisation can be significant.
There was a Gallup Poll conducted in 2015 where they surveyed 18 million customers from a wide range of sectors. Of those customers surveyed, only 50% felt that brands were delivering to their promises. If you are one of those brands that aren’t delivering on their promises then that is a significant problem for you because customers are fickle people. They will vote with their feet and with their wallets and purses. And they will go elsewhere if they feel you are not delivering.
Impact on the viability of organisations
A slightly different example of catastrophic success, is I think, the UK’s national health service. Initially, the UK NHS (National Health Service) was set up as a means to protect the very poorest in society, ie those who couldn’t afford medical treatment. But the treatment it provided to people became so good that everybody wanted to have the same treatment. And progressively over the years, since the NHS has been formed, more and more people have been taken into the NHS umbrella. Now it has become literally a national health service, i.e. something which provides free care effectively for everybody, no matter what your rank, status or wealth position is.
But the system can’t cope because it was never designed to actually do that. The funding required to deliver it at that scale compared to the scale it was meant to be delivering at is unaffordable. And we are coming to a point now where there are only really two broad choices for the NHS to continue. That is that either we go back to the original model whereby people with sufficient levels of income, means-tested, pay for their treatment and others don’t. Or taxes go up in order to pay more money into the NHS. Now it will be a brave politician that does either of those two choices, but it is another example of where catastrophic success can impact not just your brand and your reputation, but the very viability of the organisation as a whole.
Impact of revenue growth on business mortality
There is an interesting piece of study done by the Boston Consulting Group. They have researched the rate of revenue growth set against the mortality rates of businesses. What you can see is that rapidly shrinking revenue growth, or rapidly shrinking revenue, is the prime indicator behind shortened mortality within companies. This is the reason why they come to an abrupt end. Interestingly, the second reason for shortened mortality is highly accelerated revenue growth. That is, people just can’t keep up with what they are trying to do. Compak was an example of this.
Within the 90’s Compak was the world’s largest supplier of PC’s, across the world. But it all came to an abrupt end in 2002 when it was acquired by Hewlett Packard. Why? Well, there was too much resource at hand effectively. They had grown so fast that they were acquiring, left, right and centre, companies that they think made sense, because they could. It wasn’t down to difficult decisions involving really challenging conversations about what should be done, shouldn’t be done, could be afforded, couldn’t be afforded. In effect there was too much disposable income and because of that decisions became a distraction, acquisitions became a distraction and ultimately they failed to deliver on their core offering. And so, as we were talking about at the beginning, the customers voted with their feet, the revenues shrank and ultimately they came to a halt.
How to mitigate the risk of Catastrophic Success
The Boston Consulting Group study and also one by the Chartered Management Institute, cites the main reason for this failure around catastrophic success, as being employee’s inability to deliver. And so for me, this is where we come back to this issue around pressure testing, in advance. If you are bringing in the operational teams who are going to deliver and manufacture and produce these items, whatever they are, or your service offerings, then they need to understand where you are trying to go. If I am going to look to sign a major new corporate client on for my consultancy, one of the first things that I do is talk to all of my team. I explain to my team the opportunity. I explain to them the likely scale and scope it is going to impact on us. We have a discussion around whether we feel we can deliver it alongside existing commitments or not. What do we need to develop? What skills do we need to bring in? What resources do we need to upscale? Do we do that in advance? Do we do that alongside the growth in that customer? It’s always done carefully, such that we are managing the risk with the resource.
The problem with catastrophic success is that people just don’t anticipate it. They don’t look to it, they don’t think about what it might impose on them. It either results in them failing to deliver to their customers, which is hugely damaging as we’ve already said, or it results in a point at which their mortality comes into play. Because they’ve grown so fast they simply can’t keep up and they end up getting snapped up because they wither and die away. When making your plans and strategies I’ve encouraged you previously to think about failure and to think about what would happen if this weren’t to go right and how do we test for it. But I’d also encourage you to think about catastrophic success. What happens if we just can’t keep up? What would that look like? How much of a risk is it? And what would we do about it? I hope you enjoyed today and I look forward to talking to you again soon!