Simplicity Leading to Inertia - Essay Example

This leads to lopsided growth of the organization, and the organization becomes vulnerable to possible changes in the business environment. In the initial phase of organizational growth and development, a simplistic process of strategy formulation has a positive relationship with performance (Lumpkin & Dess, 1995). One of the most prominent examples of simplicity guiding an organisation’s strategy is GM during the 2000s. During the middle of 2000, SUVs and light trucks had the highest profitability among all passenger cars, and GM’s product portfolio, as well as R&D spending, was hugely oriented towards developing newer variants of SUVs.

In this phase, developmental activities for greener and hybrid cars were neglected. When the price of fuel reached astronomical levels towards the end of 2009, consumers shifted from SUVs to compact cars and hybrids – a segment where GM was way behind its main rival, Toyota. This resulted in a massive decrease in revenues for GM and it was pushed to the brink of bankruptcy. Inertia (active inertia) is an organization’s tendency to follow established patterns of behaviour—even in response to dramatic environmental shifts.

(Sull, 2011; Rumelt, n.d.). When a successful organization faces a new challenge, the management tries to implement strategies to adapt to the changing environment. However, these strategies are frequently guided by historically successful insights - insights that are often redundant in the changing environment. The management, weight down by past success, does not want to take on risks by following the new, untested path of action. However, what they forget is that something that has worked in the past may not necessarily be equally effective in future.

Firestone almost acted as a captive supplier to Detroit’s Big Three – GM, Ford and Chrysler. With sales strongly driven by the demand by the 3 major buyers and predominantly insulated against any fluctuations in the market, it responded to radial tire technology with beefed-up production of bias tires. This had resulted in the near-death of Firestone.  (Sull, 2011).  Similarly, Kodak, the then undisputed leader in films refused to change its old, tried and tested strategy despite the advent of digital photography. The advent of digital photography completely changed the rules of the game, and Kodak, unable to adapt to the new environment, almost faced death. 

While Simplicity refers to the state where an organization focuses on only a small subset of factors while ignoring other critical factors, Inertia refers to the state where an organization adopts historically successful strategies to counter new challenges. While these two concepts are inherently different, they are also connected by the fact that both these two situations arise when the management refuses to move out of the comfort zone. In both these two cases, the management, weighed down by previous success, refuses to risk the uncertainty of venturing into unchartered territory.