Confronting the Icarus Paradox– Dark Side Of Success and Perils of Excellence: Why Successful Companies Fail…

Icarus Paradox: Successful firms can fail to take full advantage of success. Instead, they often consume their resources through a stream of questionable decisions. ~Fredrickson

The Icarus Paradox is the observed phenomenon of businesses that fail abruptly after a period of apparent success. The term, Icarus Paradox, was coined by Danny Miller in 1992 article, where he noted that some businesses bring about their own downfall through their own success; be this through– over-confidence, exaggeration, complacency. Icarus is a figure in Greek mythology that flew too close to the Sun and melted his own wings: The Icarus Paradox is that the same thing that had made him successful, escape the prison and fly, is what led to his downfall. In his overconfidence he became blinded to dangers of flying too close to the sun.

This is what often happens with very successful companies too; they become very successful, which makes them overconfident and blind to the dangers that threaten their business: Ultimately this may lead to their downfall. Did you know that when you look at the Fortune 100 list of companies from 1966 that 66 of them no longer exist; that’s absolutely stunning. Also, 15 companies still exist but are no longer big enough to make the list and, of the original list, only 19 companies still made the cut in 2009 and even fewer are on the list in 2012. Why?

According to Freek Vermeulen: You could call it arrogance or, more kindly, naiveté but there is a certain blindness at play; blindness to the dangers of continuing a previously successful course of action for too long. Over the years, companies begin to focus just on just the few thing that made them successful (e.g., product, service, production…). Initially, that serves the company well, but according to Hedberg; success builds confidence-in and commitment-to the current course of action and that confidence biases future decision-making. As result, companies gradually slide so far out of touch with reality… that the potentially fatal disaster develops… unforeseen.

Companies, by then, are too late to make the fundamental changes that are required in their evolving business environments, which might include; new competitors, different customer demand, disruptive business models… Some companies recover, but others don’t. However, companies continue to arrogantly assume and proclaim that what they have always done, and what has brought them so much success; should always work just fine, which is the seed of their downfall…

In the article Icarus Paradox in This New Age by Srijayan Iyer writes: The paradox of Icarus, who died after flying too near the sun on wings made of feathers and wax, was that the wings, his greatest asset had led him to his demise. Many successful businesses are hushed into a false sense of security by relying on established beliefs and processes. These beliefs and processes become liabilities in face of environmental change… and, the success that organizations strive to achieve plants the seeds of their possible future decline.

At root of this argument is the belief that sustained success dulls the senses by which managers perceive the need to change. In essence, success builds confidence-in and commitment-to the current course of action and that confidence biases future decision-making. As result, organizations gradually slide out of touch with the realities of their business environment, and that the potential fatal disaster develops, unseen. Icarus perished because he relied too heavily on his existing plan and current abilities.

It possible that the same tendency plagues managers today. Thus, it’s important to realize that organizations may bring about their downfall because of their own success– through a combination of; over-confidence, exaggeration, complacency…

In the article A Sociological Perspective on the Icarus Paradox by Michael L. Barnett writes: One of the more interesting counter-intuitive findings in organizational research is that success breeds failure. This counter-intuitive has been described in terms of core rigidity, core incompetence, and even the Icarus Paradox.

The literature on the topic suggests that success yields over-confidence and myopia in firms and managers, and eventually causes failure. We augment the literature by suggesting that success breeds not only internal pathologies that cause firms to misuse established resources, over-time, but also external pathologies that cause firms to lose access to resources. In particular, success influences stakeholders’ perceptions of firms, causing firms to lose the benefits of under-dog status and gain the problems of over-lord status.

We term this notion that success warps images of the successful and leading to their decline: Helios Paradox… dominant companies must counter the natural tendencies– to stay the course, if they are to remain successful, over time… and not succumb to; Icarus or Helios Paradoxes.

In the article The Icarus Paradox and Why Strategies Fail by Mangudi Avial writes: The Paradox of Icarus was that his skill and technology, which led him to freedom, ultimately led to his death. Danny Miller found, in his research, that the victories and strengths of companies can often be the cause of their future strategic failure. Miller delineated four major causes of strategic failure: leadership traps, monolithic cultures and skills, power and politics, structural memories. These causes emerge while a company is experiencing success; especially, in its strategic initiatives. Further explanation:

LEADERSHIP TRAPS: Success can be a trap in- and -of itself. Miller found that consistent success tends to reinforce leaders’ world views and ties them rigidly to the strategies and processes that brought about past successes. This causes, in turn, these same leaders to become:

  • Overconfident.
  • Prone to excess and neglect.
  • Prone to shape strategies based on their preferences, rather than the changing business circumstances, customers, and technological shifts dictate.
  • Conceited and thrive on adulation from press, subordinates, shareholders, admirers…
  • Obstinate and prone to resent challenges to their way of thinking.
  • Isolated from the reality of the marketplace.

The impact of those tendencies on strategy-making is very negative when strategy is developed from; ego, preconception of what causes success, stubbornness, and old worn conceptual models.

MONOLITHIC CULTURES AND SKILLS AND POWER AND POLITICS: Miller found another reason for strategic failure in organizations that have been successful is due to the fact that these organizations tend to rely on a ‘star’ department and the culture that builds up around them. When certain functions take precedence over others, in an imbalanced manner, other business functions are seen as less important or perhaps, not important to the success of  organization.

Over-time, the evolution of an organization’s culture, in successful companies, usually becomes monolithic, intolerant, and focused on a single goal or very limited goals. In addition, the ‘star’ department attracts the best and the brightest managers away from other departments, such that an imbalance of talent develops within the organization.

Conversely, talented managers outside the ‘star’ department usually leave and join other companies that can appreciate their skills. As a consequence, the ‘star’ department is able to gain significant power, and thus is able to exercise disproportionate amount of leverage on the overall organization…

POWER AND POLITICS: As managers in the ‘star’ departments increase their power, they become less inclined to adjust the way they have always conducted business. Programs, policies, and practices that, in the past, have proven successful and given these managers such high status are loyally adhered to, and the ability to make organizational adjustments becomes limited. The ultimate consequence of this type of power build-up, in a company, is that past/current strategies are perpetuated, often without a careful evaluation of their effectiveness.

STRUCTURAL MEMORIES: Past successful strategies engender policies, routines, systems, and programs in a company and the institutionalization of these processes within a company creates a powerful organizational culture. Managers rely on ingrained habits and reflex actions rather than deliberating and reflecting on new issues.’ In these situations, the past dictates how one sees the present and future, and a powerful force for continually choosing the same, or similar, strategic courses of action, both; within and outside the organization.

The Icarus Paradox is an interesting account of what creates stellar business success, and at the same time, sows the seeds of corporate failure. Companies that were once successful because of their ability to be flexible become increasingly rigid in their internal structure and decision-making process, and unwilling to expand into new markets away from core business. For example; corporate giants like General Motors, 20 years ago was thought to be solid and would last for ever; and then recently it teetered on brink of bankruptcy.

Companies (like people) are always either; getting better or getting worse. Among Bob Dylan’s most pompous of all lyrics, but in this case, I’m afraid it’s appropriate: He who is not busy being born is busy dying. Companies need to push themselves and clients, continually; to be born and re-born every day: Though that’s a difficult proposition in today’s economic climate…

The primary thesis of Danny Miller’s Icarus Paradox is– when taken to excess, the very factors that have previously driven an organization’s success, can actually drive them into decline. Despite the shortcoming, Miller’s Icarus Paradox work is important; since it points out that great companies… even those that once were thought to be impervious to failure can fail.

Just as the fabled Icarus of Greek mythology was able to fly so high, so close to the sun, that his wax wings melted, then plunged into the sea: This same paradox can apply to outstanding companies… that their very success seduces them into the excesses that cause their downfall

Strong performance triggers a defensive mindset, where the focus is on potential for loss. That mindset produces subtle biases in subsequent decision process that sow seeds of future poor decisions.  ~Kahneman