They fall because they no longer know to read market signals.
Market signals are not easy to read: they are weak and ambiguous, and they need deciphering.
Only a systematic and powerful process can decipher market signals early enough to save a firm from decline.
The General Electrics’s CEO, once defined management as the task of starting reality straight in the eye” and then having the courage to act. This is much easier said than done.
There are two basic problems with this definition. First, management must be close enough to reality to stare it in the eye. Second, it must not only stare but also see what is in front of its face.
This is a tall order. First, top management, through no fault of its own, is never close enough to the market. Second, some top executives can’t see competitive reality staring at them.
One of the facts that amazed me the most over the past eight years, while helping American and European firms improve their ability to read their markets, was how insulated top executives were from competitive reality. This is because they secure their competitive intelligence (market signals regarding change) at the best through a close circle of “trusted” personal sources, or at worst through those one-page news summary clippings. Top managers’ information is invariably either biased, subjective, filtered, or late.
This is a repeated phenomenon. By the time most top executives get firm evidence regarding changes taking place in their markets, the company has lost touch with customers, technology, competitors, suppliers, government, and other myriad forces operating to squeeze profits out of competitive markets. As Ben Rosen, the chairman of Compaq, lamented recently in describing Compaq’s changing market,
The question is not whether your company will lose touch with the competitive arena, but when it will lose touch.
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