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Archive for November 17th, 2008

Why Great Companies Become Also Rans – Consider Firestone

Monday, November 17th, 2008

by: Geoff Ficke

Many sterling companies have attained great heights in the last 100 years, only to plateau, decline and disappear. Bethlehem Steel, American Motors, Montgomery Ward, PanAm, TWA, Faberge and Marshall Field are prime examples of famous companies that no longer exist after enjoying generations of success. There are hundreds of other examples. Why do organizations expire after gathering such power?

Currently the three American automobile giants are staring at an agonizing death by a thousand cuts. Ford, General Motors and Chrysler are case studies in how to lose direction and implode. They have not responded to changing market conditions, agreed to unrealistic and unfavorable labor and dealer contracts, been indifferent to product styling and let the competition assume a perceived advantage in quality and price. For these, and many more reasons, their future is very hazy.

At one time, these companies were considered great examples of superior American management. Their international reputations were among the highest enjoyed by business anywhere. One of the great suppliers to the auto manufacturers was Firestone Rubber Company. Firestone’s tale of decline is cautionary.

Leonard Firestone built his eponymous tire and rubber production company during the early 20th century, riding the coattails of the burgeoning American automobile industry. Firestone was the gold standard in tire production. Its management was considered the best of the five American tire manufacturers. As the century progressed, the company prospered greatly but grew arrogant. The business developed a strange aversion to new product development.

In the 1960’s Michelin, a French tire manufacturer, developed the first radial tire. Firestone decided to stick with belted tires. The advantages of radial tires were soon obvious and the world’s auto companies gravitated quickly to these new tires. Firestone’s American competitors Goodyear, Uniroyal, General Tire and tiny B. F. Goodrich tried to compete by introducing belted bias tire technology. They were unsuccessful in this effort and soon decided to jump into the radial business. The great Firestone Company was alone, and very late to get into the radial game.

It took Firestone until 1972 to attempt to market radial tires. A major mistake was made when the management of Firestone decided to simply rework belted tire production lines to produce radials. They decided to take this route to minimize capital expenditures. Nevertheless the historic goodwill the company had accrued made Firestone Steel Built radials the fastest growing tire in the world in the 1970’s. Unfortunately the company had compromised quality in their radial tire production process. The result was the largest tire recall in history in 1978 because of safety concerns. The company became a favorite target of consumer groups.

By 1988 Firestone was exhausted from the radial battles. The Firestone Tire and Rubber Company was purchased that year by the giant Japanese tire manufacturer; Bridgestone. This left only Goodyear as an American owned producer of tires. Why had an iconic, historically well managed company, reacted so disastrously to competition and new technology?

The best answer, and it applies to all fallen giants, is active inertia. Large companies become inert, listless, and ponderous. Their historic corporate relationships become blinders. Values harden into dogma’s, we have always succeeded doing things this way, so we will continue to do things this way. Corporate processes and policies harden into routines.

Leonard Firestone was a visionary. So was Charles Revson (Revlon), Alfred Sloan the architect of General Motors, Henry Ford, Juan Trippe at PanAm and Howard Hughes at TWA. These companies were their heritage. As the businesses evolved into public companies and the entrepreneurs who had had the visions to create and nurture their success retired or died a corporate malaise can set in. Businesses die if this is allowed to happen.

The United States government is the best possible example of failure. This enterprise is structured to fail. It is wasteful, duplicitous, mission confused and counterproductive. Money cannot be accounted for, results are not quantifiable and responsibility for program failures is never assigned. The government is not created to solve problems, it is organized to institutionalize and perpetuate problems. This is why the bureaucracy enjoys never ending growth, even as so little is ever accomplished.

History is the best teacher. Those who do not learn the lessons of history are bound to repeat their mistakes. This piece could have been written about any one of a hundred formerly iconic brands or businesses that failed. The failures are readily available as teaching tools. Hopefully our leaders will start to review some of these case histories before deciding which industries are to be winners and losers.