Fun Fact: The Icarus Paradox


by Shreyanka Pal, Deputy Editor

Have you heard the tale of Icarus? According to Greek mythology, Icarus had been presented with a pair of wings fashioned out of feathers and beeswax, by his father Daedalus, to escape an island. Overwhelmed with the ecstasy of flight and overcome with the feeling of divine power that came with it, Icarus ignored all warnings to not fly too close to the sun. As he ascended higher and higher, the heat from the sun melted the wax in his wings and Icarus fell from the sky, plummeting to his death.

This fabled tale of Icarus is what forms the basis of this paradox: his greatest asset, or the same thing that made him fortunate, is what led to his demise.

Danny Miller, who coined the term “Icarus Paradox”, finds its application in several eminent companies and businesses. He deems, “their victories and their strengths so often seduce them into the excesses that cause their downfall. Success leads to specialization and exaggeration, to confidence and complacency, to dogma and ritual.” In other words, the very things that made these companies flourish resulted in overconfidence, blindsiding them to inevitable dangers that eventually led to their downfall.

Most successful firms owe their prosperity to a unique competitive formula. As this formula gains momentum and reaches a higher pedestal, it boosts the management’s confidence in this winning formula. Over time, the firm ends up focusing solely on refining and fine-tuning the strategies, products or values that propelled their success. Activities that do not conform to this paradigm are generally neglected or discouraged.

This approach might be profitable for some firms in the short-run as they specialize and increase efficiency, sales and growth. In the long run, however, the viability of such an approach is questionable, as it bars firms from keeping up with threats of new competition, changing consumer demands, freshly developed business models and modifications in the external environment. More often than not, they end up losing out in the dynamic race to the top.

This phenomenon is not unusual. Did you know that out of all the companies in Fortune 100 in 1966, 66 companies no longer existed by 2006? 15 still existed but were no longer on the list and only 19 were able to hold onto a place on the list.

A prime example of the paradox would be the rise and fall of Nokia. In 2007, Nokia was the world’s largest mobile phone manufacturer, holding more than 50% of the global smartphone market shares. They rose to fame for their sturdy handsets and user-friendly interface. By the end of 2013, however, their market share plummeted to 5%. Why did this happen? Among other reasons, Nokia failed to recognise the shifting consumer preferences – consumers now favored high-quality and innovative software to well-built hardware. But, Nokia continued to focus its research and innovation on transforming the hardware of their devices. Hence, competitors, like Apple and Samsung, that kept up with the changing consumer demands were able to crush Nokia.

https://www.zdnet.com/article/nokia-reinvented-decline-resurrection-and-how-ceos-get-trapped/

Companies like Laura Ashley, Lehman Brothers, Tupperware, Merrill Lynch among others have also fallen prey to this paradox. They now form the tales of once dominant companies that lost their touch at some point. Some of these businesses were able to recover, some weren’t, but they all blindly believed that what they did – what brought them so much success – would always work just fine, even as the world moved on.

References:

https://en.wikipedia.org/wiki/Icarus_paradox#:~:text=The%20Icarus%20paradox%20is%20a,led%20to%20their%20initial%20success.

https://hbr.org/2009/03/businesses-and-the-icarus-para

https://www.sciencedirect.com/sdfe/pdf/download/eid/1-s2.0-000768139290112M/first-page-pdf

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s