What Is Corporate Inertia?

Companies with past records of success may be reluctant to change their current model.
Companies with past records of success may be reluctant to change their current model. (Image: Thomas Northcut/Photodisc/Getty Images)

Corporate inertia is a term used to describe the way in which many organizations and management teams fail to innovate or manage change effectively because they are institutionally or otherwise unable to change or reluctant to change. Several factors that lead to corporate inertia are an adherence to initial ambitions, abundance of resources, sunk costs and the notion that if something is working, there is no need to fix it.

Adherence to Initial Ambitions

Many companies are founded with a specific set of goals and ambitions, such as to become the market leader in a certain product offering or provide the highest quality service in the industry. When these business goals do not pan out, leadership is sometimes hesitant to abandon its initial hopes and dreams. For example, a company striving to be the high-quality option for a certain service might find that it is better suited to be a low-cost option with bare bones offerings and yet may be too hung up on its initial goals to accept this more practical reality.

Abundance of Resources

One problem many large, successful organizations face with regard to corporate inertia is the notion that they are rich enough to buy any successful innovation that develops within the industry. In other words, the company is content to let other industry players innovate while they sit back and wait to find the best company to acquire. The problem is that such a strategy is expensive and may not be successful because there are many factors that can cause a merger to fail.

Sunk Costs

Sunk costs refer to resources that have been invested in a project or initiative that cannot be recouped. Whether the project is eventually successful or not, those resources are gone forever. Many managers and corporations are very hesitant to abandon a current model or project if there are high sunk costs. They feel that the only way to justify these sunk costs is through eventual success, even if it means investing even more resources in the process. Although it may be difficult to accept, it may be the best course of action to abandon a project and simply accept the fact that the sunk costs did not contribute to something of value.

If It Ain't Broke, Don't Fix It

Many managers and organizations are hesitant to take a chance on a new strategy or business model without the existence of serious problems with the current model. Managers demonstrating corporate inertia may be acting completely rationally. If they continue with the current, successful model, they are virtually guaranteed to be able to demonstrate solid performance to superiors and investors; however, if they change the model, they risk failing, which could cost them their job.

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