Why do companies that dominate huge markets go out of business? You’d think that all that market power would enable industry leaders to maintain their lead. After all, leadership confers huge advantages — e.g., more capital, great access to distribution, superior products and a bigger talent pool.
How could such industry giants go down the tubes? Consider A&P. At its peak, A&P was the largest retailer in the world, operating nearly 16,000 grocery stores in 3,800 communities, along with dozens of warehouses and factories.
As I wrote in my new book, Goliath Strikes Back, its two top executives, John and George Hartford built the chain of small grocery stores into the Walmart or Amazon of its day. A&P’s ubiquitous stores offered goods that consumers wanted at low prices thanks to the volume discounts it extracted from suppliers.
The Hartfords retired and put in their stead a long time company loyalist, Ralph Burger, whom they charged with maximizing dividends rather than keeping up with changing demographics and upstart rivals. That crippled A&P’s ability to adapt. It filed for bankruptcy for the second and final time in 2015.
There are plenty of similar examples — such as the fate of Sears or Blockbuster Video — which illustrate a profound insight: the most important factor determining a company’s future is the strategic mindset of its CEO — the mental attitude that top executives bring to the rapidly changing blend of problems and opportunities facing the organization they lead.
Do you have the right strategic mindset to lead your business into a prosperous future? What should you do if there’s a mismatch between your strategic mindset and what your company needs to achieve long-term success?
Here are the three strategic mindsets and what they might mean for you.
1. Deadly: Head in the Sand.
Leaders with a Head in the Sand mindset seek to discourage their teams from providing them with information about how their competitive environment is changing. Team members who urge Head in the Sand leaders to adapt to changing customer needs, new technologies, and fast-growing upstarts can quickly find themselves out of a job.
Such leaders often stay at the top because of confirmation bias — their past successes lock in a set of beliefs about what drives industry success. They use their power over the people who report to them to reward those who praise their adherence to those beliefs and punish those who challenge them.
The A&P case illustrates this problem well. Burger accepted the assignment he was given by the Hartford Brothers — to milk A&P for its dividends. He dutifully ignored all the demographic changes in the grocery industry and the strategies of more successful rivals. His dogged commitment to pulling dividends out of A&P — driven by his Head in the Sand mindset — cost the company its independence when it sold itself in 1979.
If this story rings any bells for you, your company is in mortal danger. It might survive for a while, but what I found most often was that such leaders ultimately sold their companies to a private equity firm or hedge fund which bled the company dry then sold off the pieces in a bankruptcy filing.
2. Good: Fast Follower.
Many large companies that have lost their way after their founders departed the scene have been rescued by leaders with a Fast Follower mindset.
Rather than focus on cost cutting, those with a Fast Follower mindset start by looking at the company from the perspective of its customers and employees — giving them irresistibly compelling reasons to reengage with the company.
A case in point is Best Buy’s CEO from 2012 to 2019, Hubert Joly who took over after the company posted a $1.7 billion loss. By the time Joly left, Best Buy was profitable and its stock had soared 330 percent. Joly’s Fast Follower mindset led him to listen to store associates, learn what was causing Best Buy’s problems and change its strategy and operations so consumers would come back and keep buying.
If you lack this mindset, you should engage with your board to hire a successor who has it.
3. Great: Create the Future.
The most valuable mindset is Create the Future which is typical of the world’s most celebrated entrepreneurs. Such leaders see where customer needs and technologies will be in the future and use those technologies to create new products that customers find far more valuable than anything else out there.
While Jeff Bezos and Steve Jobs are widely celebrated as Create the Future leaders. I found that Netflix’s CEO, Reed Hastings embodies this mindset in a way that is more sustainable — because the company does not orbit him in the same way.
Jobs maintained tight control over all aspects of the new products – such as the iPod and the iPhone. While Hastings created similarly revolutionary services – DVD-by-Mail and Online Streaming, he prided himself on delegating much of the decision making and execution to talented and empowered executives and employees.
If you are a Create the Future leader, you should consider carefully the mindset of your successor. By all means, don’t make the same mistake as A&P’s Hartford brothers.
