Do you know the tale of Icarus? Icarus was a figure in Greek mythology who fashioned some wings out of feathers and beeswax to escape an island. So enamored of his newfound ability to fly, Icarus ignored warnings not to fly too close to the sun. Upon getting close to the sun, the beeswax melted, his wings fell off, and he plummeted to his death.

This tale forms the Icarus Paradox: The same thing that had made Icarus successful is what led to his downfall. In his overconfidence he had become blind to the dangers of flying too close to the sun.

And this is what we often see very successful companies do too: they become successful doing something but this makes them overconfident and blind to the dangers that other developments pose to them. This behavior often leads to their downfall.

It is a common phenomenon. Did you know, for example, that when you take the list of Fortune 100 companies in 1966 and compare it with the Fortune 100 in 2006, 66 of those companies don’t even exist anymore? Another 15 still exist but aren’t on the list any longer, while only 19 of them are still there. Similarly, ample research and statistics show that for a variety of industries very successful firms have trouble staying successful.

You could call it arrogance or, more kindly, naivete but there is a certain blindness at play; blindness to the dangers of continuing a previously successful course of action for too long.

How does it happen? Over the years, companies begin to focus on the thing that made them successful (a particular product, service, production method, etc.). Initially that serves them well and they become even better at it. It will also come at the expense of other products, processes, and viewpoints that the company considers less important and off the mark, that are discarded or brushed aside.

As a result, firms are too late to adapt to fundamental changes in their business environments such as new competitors, different customer demand, radical new technologies, or business models. The historical examples of Laura Ashley, Atari, Digital Equipment, Tupperware, or Revlon come to mind.

It also causes organizations to carry on activities too long and too far, despite the presence of some fundamental design or organizational flaws. The historical examples of the space shuttle Challenger, Merrill Lynch, Royal Bank of Scotland, AIG, Citibank, Lehman Brothers, and so and so on…

They form the tales of once dominant companies that at some point lost the plot. Some of them recovered but some of them went under, arrogantly assuming that what they always did – and what had brought them so much success – would always work just fine. Only to find out the hard way that they were wrong, and the world had no use for them any longer.