Leadership Lesson: Less Is Better

Freek Vermeulen, an associate professor at London Business School, just completed research on the Chinese pharmaceutical industry. He examined the success that companies had when they used multiple growth strategies (e.g., diversify, innovate, add new products to the portfolio; partnerships; etc.).

He found that companies failed when they did too much. Why? They ran into an unforeseen obstacle: management capacity. Here’s an excerpt from Vermeulen’s blog post about the research:

The results showed that, in isolation, each of these initiatives indeed stimulated growth; yet when used excessively or in combination they actually had a negative impact and hampered a firm’s growth prospects.

Hence, stop trying so hard! You might do better…

My take: Organizations almost always underappreciate two key constraints. The first is limited management capacity, as Vermeulen highlights in his research. The second constraint is the ability for an organization to absorb change. All too often, leaders focus on only one constraint: funding. Hopefully executives will learn that success takes more than just money.

The bottom line: Don’t lose sight of the less obvious constraints.