Why do companies follow the life cycle?

Posted by on Apr 6, 2015 in Axiology, Business, Knowledge Management | 0 comments

The more disturbing question is why do companies reach the decline phase.

Thousands of articles and books discuss this topic, but one that has caught my eye as a new and refreshing look on this topic  is by and with the courtesy of Dr Jaan Suurkula. He has built this model after more than 30 years as an occupational health consultant in many different fields. It makes for some interesting reading. Some readers may find it extreme, but I think a high percentage of you will recognize the profiles!

The following extract highlights the importance of employee Knowledge Management

A well-known problem in business life is that companies tend to lose their initial vitality and creativity after a period of growth and stability, ending in a decline of the company which may defy attempts to save it. So far, the reason for this phenomenon has been considered more or less “mysterious” and there has not been any really effective remedy.

I have found good reasons to believe that a so far overlooked stress-related mechanism may be the root cause of the problem in perhaps a majority of cases, although of course other factors may contribute. This issue can be solved when the cause is as proposed (which I believe is the mostly the case) and the decline can be prevented.

Business Life Cycle

This is the “classical” pattern based on the experience from many companies.

  1. In the upstart, the company is in a creative, entrepreneurial phase where there is a significant risk for failure.
  2. Thereafter comes the maturity phase where it has established itself on the market and functions in a stable and adequate way when it comes to satisfy the needs of the market. The company has turned into a safe workplace for the employees.
  3. This is sooner or later followed by a decline phase ending in company death unless radical measures are taken. A key factor in the decline here seems to be a loss of creativity, flexibility and alertness to the market trends, resulting in too late or inadequate adaption to changing market conditions requiring creative renewal or change of the product range. Some consultants dealing with this problem have noted that the declining company has lost its creative freshness and has turned bureaucratic.

To prevent decline, managements have tried moving top managers to different positions, employing new company leaders, dividing the company into smaller, independent units, retraining the managers, using manager coaching etc. Mostly these measures had had only partial, if any, success.  The reason is that they have not addressed what I think is the root cause in most cases.

The overlooked difference

On the basis of experiences and observations as declared above, I am proposing that a decisive factor leading to decline is a change in the psychological setup of managers seeking employment in the company.

Because a company in the entrepreneurial phase is a more insecure place, they tend to attract emotionally secure people because these are less bothered by the risk of company failure.

In the maturity phase, however, more insecure people are attracted to the same company because it seems to be a safe place. Such people are more stress-prone.  For this reason a gradual increase may occur of managers with stress-related suboptimal brain functioning (please note that even moderate, often unnoticeable, stress can affect the brain).

This may not sound very dramatic but it can lead to a gradually increasing decline. I will explain this in detail below.

Entrepreneurial phase

In the entrepreneurial phase, people who like challenges, daring to take the risk of losing their job due to project failure are most likely to thrive in the management. Such people tend to be significantly more creative, secure, and confident than the average person. They tend to have a low anxiety level, caring more about stimulating work conditions than money and a safe job. These traits are characteristic of Balanced-Emphatic-Behavior (BEB) which is associated with low stress-proneness. For full understanding of this article, I recommend you to read about BEB here if you have not read about it before.

Maturity phase

Not until the company reaches the maturity phase, people who prefer stable, successful companies will want to get employed.

Such people are more likely to be insecure (weak “emotional basic trust”) with proneness for conscious or suppressed anxiety. Insecurity makes people care more about status, high income, and safe employment because this reduces their anxiety. Such people tend to be less creative, more rigid, more assertion-oriented (prestige/status-fixed), overtly or covertly aggressive and more or less dishonest. These traits are characteristic of Survival-Oriented-Behavior (SOB) which is not an inherited trait, but an acquired disorder associated with high-stress-proneness. I recommend you to read about SOB here if you have not read about it before.

For reasons explained below, BEB people are less likely to seek employment in a company that has reached the maturity phase.

The invisible start of the decline

I am suggesting that the decline starts when the there is an increase of SOB-dominated people in the management to such an extent that the BEB-people loose influence. Such a change would not be obvious, even to those in charge of employing people, because the SOB problem is mostly concealed. Even the SOB-persons themselves are mostly unaware of or don’t recognize their problem.

The reason why a shift may occur towards SOB-dominance can be understood from a social-psychological viewpoint:

BEB-people are by nature non-assertive, non-aggressive and thrive in a positive, friendly atmosphere that enables them to apply their creativity without unnecessary restrictions and bureaucratic formalities.

When SOB people enter the company, they do so in order to increase their incomes (thereby their security) and make a career. So they are intent on aggressively asserting themselves.

When SOB people are approaching leading positions, they may not hesitate to use unfair and unethical methods to bypass the BEBs.

The critical conflict transforming the company

When SOB people have reached leading positions, subordinate BEB people tend to leave the company. This occurs for different reasons.

SOB people are “bureaucracy-minded” – they want full control and thereby they tend to restrict the flow of creativity and innovation in the company. This is because SOBs want maximum security, and therefore resist change – they feel secure and fine when things are as usual. Therefore they tend to consciously or subconsciously resist innovative solutions. This creates frustration in BEB persons who commonly are the main innovators in the company.

Moreover, the SOBs experience BEB persons as potential threats in their competition for higher positions because of the greater brilliance and creativity they have. So the BEB-persons experience that they are less appreciated if not suppressed by their new SOB-superiors.

As BEBs are not career-minded and assertive, and prefer constructive and friendly cooperation in a creative, non-bureaucratic atmosphere, they tend to leave the company when SOBs are taking over.

For the same reason, the likelihood for new BEB people to seek employment will decrease the more there is of SOB-dominance. BEB people are usually good at grasping the situation quickly and realistically and are likely to avoid seeking employment when sensing the rigid, anti-creative and bureaucratic mentality in a SOB-dominated company.

The probability for SOB-dominance to occur in a company is considerable, because most people in modern societies are more or less in the SOB state, see footnote “Air Force experiences about SOB”.

The most harmful personality setup

The most pronounced SOB persons have a setup that is especially harmful to a company. These people are anxiety-laden to a considerable extent. They are often unaware of their anxiety or can effectively conceal it even to skilled psychologists as well as in common psychological tests (this was the reason why the Swedish Air Force developed the “Defense Mechanism Test“, a test that effectively reveals this disturbance that makes pilots prone to make dangerous mistakes under stress).

Such greatly disturbed people are of the so called “Authoritarian personality type“. Their anxiety and related inner insecurity creates a strong urge in them to maximize the sense of security by being “in control” of their situation. Therefore, they aggressively fight for arriving at the very top of the organization, the position of greatest control. Often they skilfully hide these tendencies until they reach the goal.

I don’t think power corrupts, I think power reveals a corrupt mind – which becomes manifest when he is safely established.

I believe it is not a coincidence that many dictators are typical exponents of the Authoritarian personality disturbance, often to an extreme degree.

Their strong need to establish outer security makes them abhor unpredictability in every sense. They want maximally possible bureaucratic control and precise, inflexible planning.

They want people to conform and to obey orders without questioning them.

They love people of the same kind, because they are conformistic and therefore predictable. They want people who don’t think independently, but follow orders slavishly without questioning them.

 “I don’t want men who think; I want men who know.” 

Emperor Julius Cesar (who decided what they should know without questioning it).

They tend to have a strong aversion for BEB people because their creativity and self-confidence makes them think independently, questioning management decisions, and behaves in a non-conformistic way. This creative unpredictability evokes “bad feelings about the person”, in reality, anxiety in the Authoritarian type who therefore wants to get  rid of BEB-people.

As BEB-people are unaggressive, they don’t take strife, but tend to leave an organization or a department where an Authoritarian type is in top.

For more about the Authoritarian personality type, see “An especially unsuitable trait” .

The destructive effects of SOB dominance

Gradually, with an increasing SOB dominance, or quite rapidly if an authoritarian SOB type acquires the CEO position, the psychological setup of people in the management is likely to shift from BEB-dominated to SOB-dominated persons.

Thereby, the company loses its creative competence more and more. The BEBs who remain, find increasing difficulties to influence the policy and business strategy of the company and to make the leadership accept their innovative ideas.

Moreover, the SOB persons, and especially the extreme SOB type (the authoritarian personality), have important weaknesses that increase the risk for precipitating a decline. Their avoidance of unpredictability makes them rigidly conservative, resisting change in every sense. They tend to force their plans and strategies on to reality rather than to adapt to the situation in a realistic way. Therefore they tend to be too late in making decisions necessary for adaption to changing market and competition conditions.

In addition, their brains work sub-optimally, with less clarity of mind and with faltering judgement, especially because of defence mechanisms that make them prone to underestimate or misinterpret threats (see Defense Mechanism Test). So they tend to make important mistakes that may further enhance the progression of the decline.

Psychopaths are the extreme variety of SOB, exhibiting many authoritarian personality traits. Absence of empathy with callous ruthless and highly egoistic behaviour is especially characteristic. These tendencies are already found in SOB but in a less pronounced degree.

Addition dec 7, 2013. FBI has published a good description of the Corporate Psychopath.

Major companies run the greatest risk

These companies are most likely to be targeted by the most disturbed authoritarian SOB types. The reason is that this mentality brings about a strong prestige- and status-orientation. Also famous companies create the greatest feeling of safety in these neurotically security-seeking types.

They are, since childhood, experts on making themselves popular and are highly skilful and dishonest manipulators (because such strategies, when successful, increase the feeling of being “in control” and secure as explained in my article on the authoritarian type). So they are skilful in making a good impression.

Their strong suppressed anxiety has pressed them to study extremely hard so as to lay the foundation for a top position (mentally sound BEB persons are unlikely to expose themselves to such incredible hardships – if they are highly successful in school, it is due to their brilliance). With their impressive qualifications and charming and winning demeanour they can rapidly manipulate themselves up through the hierarchy (I have seen such cases going all the way to the top in a few years).

When they reach the top, they are likely to kick out BEB-persons very soon and consolidate SOB dominance at all levels of management and so the company runs the risk of rapid decline, which is difficult to prevent unless a wise board understands that this charming and highly qualified CEO is the cause of the trouble, although he has been skilfully been able to conceal that, being an expert manipulator and a liar, convincingly blaming everybody else.

The greatest danger to the company is that, if a pronounced SOB-person is the CEO, he may, due to defence mechanisms, or because of his strong prestige-mindedness, actively conceal or downplay serious threats and problems both to himself and to the board, so that decisions to make necessary changes to save the company occur too late.

 

Discussion

It may be objected that competition from new, better products, may be an important contributor to decline in some cases. No doubt this may be true for SOB companies.

However, a BEB-dominated company, with its inherent flexibility and creativity, is able to adapt rapidly to new technological changes. Samsung is a successful example, transforming rapidly to a strong smartphone competitor to Apples iPhone. Blackberry is the opposite, holding on to outdated technology far too long and thereby rapidly diving from a top position to the verge of bankruptcy.

Moreover, a creative (BEB-dominated) company is likely to be able to develop new products that keeps them “ahead of the pack”, provided the company has enough financial power to develop new competitive models or to switch to other innovative products. Steve Jobs of Apple computer I think is an excellent example of this when he used the Mac and iPod experience for entering the mobile phone business in a situation when the computer section did not show a significant growth potential.

So the key issue is still mental (BEB/SOB) in the case of new technologies – the ability  flexibly adapt to, or to foresee important changes of the market situation – it is here that a creative and flexible BEB-dominated company has a great advantage over the conservative and uncreative SOB-dominated one.

I have experienced that, sometimes when I have pointed out an obvious case of this kind, the directors completely fail to understand. It reminds of the inability of a mentally ill person to realize that he is ill. I think this may be an ominous sign, that may indicate, according to my experience, a dangerous level of SOB dominance in the leaders, because this brings about mental rigidity with a resistance to changing views and understandings even before fairly obvious signals. Psychological Defence Mechanisms that are active in the SOB condition are likely to contribute to an unrealistic appraisal of the situation, because they make people downplay, distort or ignore information that generates conscious or subconscious anxiety.

As BEB is possible to identify and to develop, I think promoting BEB should be a major issue in all companies not only for preventing decline but for enabling continued and growing success because it depends on creativity, flexibility, realism and dynamism – that all are BEB-traits.

Summary

A change of the traits in top management people can cause the transformation of a company from success to decline and death. I think this is the most common reason for this problem.

This transformation occurs when the creative, flexible, secure and non-assertive entrepreneurial type “BEB” personalities, that are attracted to the company management in the risky start phase, get “crowded out” in the maturity phase by people who seek employment because they want security and prestige. These people are not very creative, insecure, aggressive and assertive career-seekers with rigid minds (“SOB-types”). So with “SOB-dominance” the company looses its “vital nerve”, the creativity, flexibility and adaptability. The probability for this to happen is considerable, not only because SOB-s are attracted to successful companies, but because most people in modern societies are more or less in a SOB-condition.

Especially if a new CEO is employed who is of the most unsuitable kind (authoritarian type) there is a risk for rapid company death because he may tend to delay necessary measures to a too late stage due to faltering judgement because of defense mechanisms that prevent a realistic assessment of the situation.

If SOB- dominance is the cause, which I think mostly is the case, the decline of a company can most effectively be prevented through proper measures aimed at shifting from a dominance of  SOB-type managers to BEB-type manager dominance. This effect could be further enhanced by creating a BEB-supportive company culture.

Pitfalls in detecting SOB

This note is addressed especially to anyone who might want to “tidy up” the company on the basis of my hints and without proper testing.

  1. Needless to say, there may be other motives for seeking an employment in an established company than SOB-insecurity, for example a responsible father or mother wanting to establish secure financial preconditions for their children.
  2. Creative persons tend to be more sensitive, more emotional and may have some tendency for anxiety without being really SOB. They can even be BEB to some degree, even if further evolution has a stabilizing and anxiety-eliminating effect.

So eliminating any anxious or emotional person may be throwing out the baby with the bath-water, perhaps losing some of the most valuable creative elements in the company.

  1. Some persons may be conservative by nature, without being SOB. This is characteristic of the “flegmatic” personality, which corresponds largely to “kapha” in the Ayurvedic classification of body/personality types, which is the most advanced and profound classification. A good kapha is a valuable asset to a company, in the right position, because of his stability, persistence and high performance capacity.  He is suitable for taking care of administrative departments like economy and assets administration. Because of his conservative, not very creative nature, he should not be involved in, for example, product development and marketing.

Conclusion

These are just a few notes to indicate that qualified testing and good knowledge of personality types is required for optimal selection and usage of the human resources in the company when it comes to restoring it from the decline caused by SOB-dominance.

Quoted from Suurkula, J, “Why companies decline – a new understanding” athttps://drgrandville2.wordpress.com/2011/02/18/why-companies-decline-a-new-understandin/

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