Doomed like dinosaurs: institutions need to adapt to their changing environment or face extinction.

Flash back with me a few years--say 65 million of them. If you find it difficult to get the feel for so many millions of years, then think of being locked in a room with an actuary for a week.

Wandering the Earth of 6,500 centuries ago, we would find the laws of nature not too dissimilar from the rules of our modern world. Then, as now, the world belongs to the giants.

Eons ago, it was the leviathan of the animal world--the dinosaur--who dictated. Then almost overnight, this dominant species virtually disappeared. It was not an evolutionary event, like the decaying of society. There were no signs of illness or genetic problem that decimated and destroyed the dinosaur. They simply vanished. Being big did not save the dinosaur from its fate.

Archaeologists now surmise that the dinosaurs disappeared as the result of a single cataclysmic event--a huge meteor striking the Earth--that changed the environment in which they lived. Not being able to adapt to the new environment, the dinosaurs expired.

Today, it's the institutional giants of commerce and industry who rule the world. In herd-like fashion, these giants forage far and wide across their industry landscape, seeming impervious to any threat. Yet, over time, despite the appearance of invincibility, many of these institutions, just like the dinosaur, also expire and disappear.

Why?

Institutions fail for the same reasons the dinosaurs died--an inability or unwillingness to recognize and respond to a changed environment. Institutions also fail when they stop doing the things that made them institutions in the first place.

Companies grow up to be institutions when they recognize and effectively respond to the needs of their customers. Further, they become institutions when they create a culture of success within the organization that encourages and rewards those associated with the company to add value; when change is welcomed, experimentation encouraged and risk regaled. Companies thrive and become institutions when they are never satisfied with what worked yesterday and constantly seek out new things that will work better tomorrow.

Unfortunately for many institutions, achieving success is the easy part.

The most difficult thing for an institution to do is to survive its own success. As a company achieves institutional success it is exposed to a creeping virus that often manifests itself in the form of entitlement and invincibility. There slinks into the culture an almost imperceptible assumption that the institution knows all the answers (or it would not have become an institution), will always receive business and is entitled to more for what it has accomplished. In short, the institution becomes complacent. And, failure is always the final curse of complacency.

The erosion of success is compounded when an industry is dominated by institutions that have together achieved high levels of accomplishment. The more institutionalized an industry becomes, the less likely its institutions will be able to adapt to a changing environment. For instance, rather than meeting the needs of consumers, institutions fall into the trap of thinking that others--even the consumer--exist to meet the needs of the institution.

Unlike the dinosaur, which was decimated by a lightning speed event, the decline of institutions evolves, but is nonetheless precipitous. As traditional products lose their appeal, what had been constantly increasing sales begins to slow and then reverses. Expenses are cut to maintain margins, causing distribution to decay and fade away. Competitive predators sniff the weakness in the air and circle in to pick off the best of the business.

The defensive cry of "Get back to the basics!" only exacerbates the situation, because the institutions have an inability to understand that the basics have changed. When institutions fail to comprehend the realities of an altered environment, actions that once were lauded as the way to do things are held up to be corrupt, unethical and even illegal. Soon, if not corrected, even the largest and most successful institutions, along with the world they have occupied, collapse and expire.

But it does not have to be that way!

Unlike the dinosaurs, modern institutions have the power to save themselves. However, in order to do so, they first must recognize that it is not change that causes failure. It is the failure to recognize and respond positively to change that dooms an institution. Just as being big did not save the dinosaur, so, too, size will not save an institution.

Robert W. MacDonald, a Best's Review columnist, founded Life USA, which later was acquired by Allianz Life. He can be reached at [e-mail].