29 Jul Don’t Be A Prisoner of the Past
Executives at many companies often become what I call “prisoners of the past.” There has been a decision made in the past, by them or somebody else, to choose an investment. This reluctance to make critical decisions due to past investments can have significant consequences. The past investments are typically considered “sunk costs” and should not be part of any investment decision. It may require the executive to admit that the prior decision was sub-optimal or a mistake, or that it is not practical anymore. This may cause the executive to “lose face” in front of their subordinates and the company, leading to a lack of willingness to admit the need for change. However, the cost of not adapting can be even higher, especially in the face of changes in assumptions, new technology, competition, or market conditions. The executive must recognize the changes and break with the past, regardless of how others perceive them. They do not consider that others will have a lower regard for them if they don’t react and adapt in the company’s best interests. It is crucial for executives to recognize changes and break with the past, as this is the key to successful adaptation and growth.
Usually, if not fixed now, the costs to fix later will increase. In fact, there can be a “domino effect.” The Systems Sciences Institute at IBM has reported that “the cost to fix an error found after product release was four to five times as much as one uncovered during design, and up to 100 times more than one identified in the maintenance phase.”1
Issues in business, like toothaches, do not resolve themselves. They require corrective action. Just as a toothache will not go away on its own and requires a trip to the dentist, business problems need to be addressed. As JP Morgan Chase CEO Jamie Dimon wisely advised, “Problems don’t age well.”2 They are like wounds that become infected if not addressed. I have yet to see a business problem fix itself by simply ignoring it.
Many businesses use the cost of delay (CoD) to quantify the economic value of completing a project sooner rather than later. This approach helps prioritize competing projects by calculating and comparing the costs of proceeding with the status quo versus investing in each. It is similar to Return on Investment (ROI) but incorporates time as an important consideration. This allows the business to understand the impact of not proceeding with a project on revenue and expenses, thereby making better decisions.
I recall one recent sales situation in which the prospect computed a 2000 percent ROI if they purchased our solution – but they did not go ahead with the project for two reasons: 1) There were other projects with greater ROIs, and 2) They did not have the staffing. They did not consider that our solution would have immediately impacted their profits the day they began using it. It would have also increased the company’s customer satisfaction by making it easier to enter valid bank routing information, which was difficult to quantify.
In addition, the digital economy has revolutionized the marketplace. Businesses that have failed to swiftly recognize the need to incorporate company websites and e-commerce have been operating in a sub-optimal manner. Companies must describe their entire product line online for individuals to access and research. This example underscores the importance of recognizing and adapting to changes in the business environment.
Most technological innovations result from someone willing to explore new ideas and having the courage to break from the status quo, from Benjamin Franklin and Thomas Edison to Steve Jobs and Elon Musk. True leaders leave bad decisions behind them, have the courage to admit mistakes, and focus on the future. They realize that past decisions are no longer relevant to future strategies.
Unfortunately, some companies are content with their current state or are worried about the costs of making changes. These companies will likely suffer the fate of others that couldn’t adapt to market changes, such as Blockbuster, Nokia, Blackberry, Borders, Sears, Kmart, Radio Shack, Bed, Bath & Beyond, and Toys R Us. On the positive side, companies that quickly adapted to change and have prospered include Apple, Netflix, Disney, Lego, Amazon, McDonalds, and Starbucks.
Your company’s past is part of its history and culture. It should not be an anchor in the harbor while the marketplace is the ocean.