A figure in Greek mythology, Icarus was given a pair of wings fashioned by his father Daedalus made out of some feathers and beeswax to escape an island he was stuck at. Enthralled by his ability to fly, he hardly took notice of the warnings not to fly too close to the sun and went way ahead in proximity to the hottest star ever discovered. The obvious happened. The beeswax melted and with no wings stuck to his body, he let himself down to his death.
Danny Miller hence coined the term “Icarus Paradox” and finds its application at companies and in businesses, eminent and big. He mentions, “their victories and their strengths so often seduce them into the excesses that cause their downfall. Success leads to specialization and exaggeration, to confidence and complacency, to dogma and ritual.”.
The Icarus Paradox was born out of this tale: The thing that helped Icarus reached his best became the thing that eventually ended being his enemy and the reason for his downfall. Blinded to the dangers of flying close to what might have, and eventually did cost him his life, he was blindfolded by his overconfidence and probably, audacity.
However strange it might sound but around 66 of the Fortune 100 companies of 1966 could not even complete half a decade of their mention in the list. About 15% of them do exist but not on the list. Only 19 of them were still there in the Fortune 100 list after around 40 years of that extraordinary recognition. It is even statistically proven that a lot of successful and flourishing companies in a multitude of industries find it difficult to stay big and successful.
Freek Vermeulen, professor of strategy and entrepreneurship at London Business School says “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”.
But, how does it even happen?
It arises out of a company’s belief that what has led to their initial success would only keep them afloat throughout and consequently, they focus their energy, time, money human capital and all other resources on that one thing, product, service, strategy, etc. The unique winning formula is placed on a pedestal and is followed all across the organisation. Initially, that serves them well and they even specialise in it and be the best at it too but it also comes at the cost of trying something new, a new perspective, domain, product, or just to sum it up better, an all-in-all new, unexplored path that is not even acknowledged but simply discarded or brushed aside. Activities that do not relate closely to the paradigm of that winning formula are generally neglected or discouraged.
As a result, it is too late to even realise that the times have changed and they will forever keep changing with new fundamentals and ordinaries in the markets, new players, customers, channels of demand, technologies and whatnot. Some organisations carry out the businesses too long and far despite fundamental flaws in their working.
A good example can be the Bajaj Scooter. It was a massive success at the time of its launch and even had a period of 10 years as the waiting period, meaning that a customer had to wait for a decade to get the delivery of a scooter. But since the company was not innovating, the success rate gradually declined and the Japanese two-wheelers with better designs and quality captured the market. Finally, Bajaj has to stop its production of scooters. It goes along the same lines for Tupperware. At its peak, it had become a status symbol to own, rather, use a Tupperware literally but then its downfall.
Another prime example of the paradox is Nokia. In 2007, Nokia was the world’s largest mobile phone manufacturer and held more than 50% of the global smartphone market shares. Making its way to the households due to their sturdy handsets and user-friendly interface, they enjoyed a fair slice of success. But by the end of 2013, however, their market share plummeted to 5%. Nokia turned its eyes away from the new consumer preferences to better-looking phones with innovative software and hence, its competitors were able to crush it.
The companies end up being examples in articles like this one, a part of tales of exceptional companies bringing about their own downfall. Not necessarily is it that they don’t recover but even if they do, sometimes it is already too late and no one minds tagging them as ‘Outdated’.