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Organizations and their natural business life cycle, what is the "Icarus Paradox" phenomenon.

The Icarus Paradox is a neologism coined by Danny Miller in his 1990 book by the same name. The term refers to the phenomenon of successful businesses failing abruptly after a period of apparent success, where this failure is brought about by the very elements that led to their initial success.

Icarus Paradox applies to businesses, divisions, organizations, CEOs, managers, and individuals alike. It also applies to strategies, management & leadership styles, decision making processes, management information systems, technology, and all the way to the products and services themselves.

In many industries, extremely successful businesses often face problems maintaining their success.

In a 1992 article, Miller noted that successful companies tend to fail precisely because of their strengths and past victories, which engendered over-confidence and lulled them into complacency. The characteristics that drove their success such as tried-and-true business strategies, dauntless and self-assured management, signature products and the reciprocal action and overall combination of all these elements when employed in excess may ultimately lead to declining sales and profits and even bankruptcy. This happens as managers make unwise decisions based on past strategies that they mistakenly believe will always be relevant and companies exploit as much as possible the strategies that contributed to their success, centralise their focus on the products that launched their brand and become blinded to changes in the external business environment.

Reasons for failure

According to Miller, success seduces companies into failure through fostering overconfidence, complacency, specialisation, exaggeration, dogma and ritual.

Most successful firms owe their fortune to a unique competitive formula. As the company continues to grow, the managers confidence in this winning formula is bolstered. Eventually, the firm ends up focusing only on refining and extending the strategies, products and values that propelled their success. Any other activities are neglected or even discouraged. This may be profitable in the short run as companies continue to specialise and improve in a certain product or strategy, leading to higher efficiency, sales and growth as they cultivate their competitive advantage in that particular area. In the long run, however, this attitude is unsustainable.

They become unable to keep up with the threats of new competitors, changing consumer demands, newly developed business models and changes in the external environment.

(Partially reprinted from source: Wikipedia, Danny Miller, 1990 The Icarus Paradox)

Download complete "The Icarus Paradox" from Wikipedia (PDF)

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