Success is a reliable predictor of failure

Our current economic malaise reminds me of the old Churchillquote, "Success is never final." He sure proved that point over and over again,most recently with the consequences of his role in reorganizingthe Middle East after WWI. The more complete quote is, "Success is neverfinal. Failure is never fatal. It is the courage to continue that counts."

These days, inspiring quotes are most welcome. But why do we cycle from successto failure, and to what extent does the former presage the latter?

Success puts most of us off guard. We enjoy the moment,or even a decade, but can be very complacent with respect to its likelycontinuance. We speak of "bubbles" and want growth to feed moregrowth. Some even speak of a bubble in higher education. Thewords "not sustainable" have entered the popular lexicon in manycontexts. Apparently, we are now more sensitive to our limitations.

Two of my favorite industries, pharma and medicaldevices, are clearly suffering as a result of their long run ofsuccess. That success was based on decades of innovationaddressing unmet medical needs. That innovation justified high margins thatafforded more investment in people and infrastructure to keep the processaccelerating.

Given that we base our economy on competition (nothing elsehas ever worked), it is important to not hold back, allowing competitors to getan edge. A herd mentality ensues, and thus a bubble, with too manypursuing the same few objectives. We don't want an industrial policy thatwould divide up the objectives as was once done with state-owned enterprises inother places. That surely doesn't work. Choices are best made bycustomers.

I like Prof. Clayton Christensen's concept of disruptiveinnovation, which he has elaborated on in several books (see, for example, The Innovator'sDilemma, Harper, NewYork, 1997). As an undergraduate student, I was introduced tothe Austrian economist Joseph Schumpeter and the concept of creativedestruction, which he promulgated in 1942 (see Capitalism, Socialismand Democracy, Harper, New York,1975). While their observations are not entirely new, these authors gavethem a particularly clear expression. Some also see attributes of thechallenge in the Hindu god Shiva, but Eastern mysticism is not a subjectof my expertise.

Society advances through innovation, and through innovation,the successful and comfortable are threatened. Success indeed becomes areliable predictor of failure. At very least there is much pain anddiscomfort. The new idea displaces the established. As innovation hasaccelerated in our time, even the recently established become vulnerable andmay be gone a decade after founding. Sailing ships, steam enginesand printing presses with lead type had a longer run. While the principlesof creative destruction and disruptive innovation apply more broadly, theirrole in business is compelling at the moment.

Success breeds complacency and vulnerability toattack. The established infrastructure can lose 90 percent of its value ina very short time. In the process, firms scramble to cut costs to hang onlonger. Manufacturing and R/D facilities lie fallow and become assets for metalrecyclers. This is a publication all about creative destruction. Many of ourreaders lost their positions as research and development came under theknife first. The comfortable among us hire, build and issue press releases,assuming an accelerating trajectory that is not to be sustained by hope alone.

As Andy Grove noted in his book of the same title, only theparanoid survive. Garage outfits rarely thrive, but a few do and oftenrise from adversity, as did Beckman, Hewlett Packard and Disney in the 1930s, atime much tougher than we have today, but one with a much slowerresponse. Some firms have been very resilient, pulling out of a slump andreinventing themselves repeatedly, but not easily and not without muchpain. The three firms I just mentioned are excellent examples of this.

Being into life's fourth quarter, I've seen a lot ofthis firsthand. I've seen UV, fluorescence and electrochemical detectorsfor liquid chromatography progress from not even existing toachieving some prominence in life sciences to largely succumbing to massspectrometry, which for two decades was thought by most tobe incompatible with aqueous buffers. Polarography has nearly becomeextinct. Analogous disruption occurred in peptide and DNA sequencing over thelast 20 years, and various approaches continue to do battletoday. Where are Searle, Upjohn, Parke-Davis, Sterling, Beecham,Burroughs-Wellcome and Marion Labs? Firms that succeed compete with themselvesusing skunks works and alliances to be ready for what's next. Cost-cuttersresist this because the outcome is not assured. Private firms with a longerview are advantaged.

Today, creative destruction takes many forms as pieces(especially people) fall off larger firms into the world of startups. Onthe other end, those startups that prove their concept get gobbled up throughmergers and acquisitions. There is very little stability. There is noentitlement and little loyalty. Time constants are such that severalgenerations of disruptive change now occur during a working life of fourdecades. This is very new and it engenders much pain. It can also bestimulating to those who like to stay in the fight.

We've had our destruction these past few years. Thereis no better time to stop complaining and start participating on the creativeside. Position yourself to catch the next wave. It's on thehorizon. Be prepared by paying attention and staying up-to-date. Youare what you know and looking forward counts. Longing for what was is nothelpful.

Going back to my title, could failure be a reliablepredictor of success? For those who gain wisdom like Yoda ("Do, or do not.There is no try."), there is no doubt about it.

Peter T. Kissinger is chairman emeritus of BASi, chairmanof Prosolia in Indianapolis and a professor of chemistry at PurdueUniversity.