The annals of business history are filled with examples of once-thriving companies losing prominence, becoming relegated, or even disappearing. This phenomenon, both common and perplexing, raises the question: how does a company go from being an industry leader to a shadow of its former self?

Several factors contribute to the failure of successful companies, with paralysis often being cited as a primary issue. Companies frequently fail to respond effectively to significant changes in their environment or defend themselves against competitors with new strategies, technologies, or products. While some companies manage to recover after painful rounds of downsizing and restructuring, many do not. This series will focus on once-thriving companies that became a shadow of their former selves.

Firestone Tire and Rubber Company, an American tyre company, was founded by Harvey S. Firestone in 1900. Firestone was friends with Henry Ford, who chose to outfit his new Model T with Firestone tyres. This partnership with the Ford Motor Company made Firestone a key player in the automotive industry.

By the 1970s, Firestone had enjoyed seven decades of consistent growth, sitting atop the thriving U.S. tyre industry alongside its rival, Goodyear Tire and Rubber Company. Together, Firestone and Goodyear were the largest suppliers of automotive tyres in North America for over 75 years. Firestone’s managers had a clear vision of the company’s positioning and strategy in relation to key customers and competitors. Their primary challenge was keeping up with the steadily increasing demand for tyres.

The company’s operating and capital allocation processes were designed to exploit the booming demand for tyres by quickly bringing new production capacity online. However, when French company Michelin introduced the radial tyre to the U.S. market, the competition changed. Radial tyres, which were safer, longer-lasting, and more economical than traditional bias tyres, represented a breakthrough in tyre design.

Firestone responded quickly, investing $400 million in radial production. However, instead of redesigning its production processes, it merely tinkered with them. This led to major problems with the Firestone 500 radial tyre. Two years after the 500’s debut, Thomas A. Robertson, Firestone’s director of development, wrote an internal memo stating, “We are making an inferior quality radial tyre that will subject us to belt-edge separation at high mileage.” Although Firestone implemented strict quality control measures, they were not enough to eliminate the fundamental faults.

Additionally, the company delayed closing many of its factories that produced bias tyres, despite clear indications of their impending obsolescence. In 1978, congressional hearings into the Firestone 500 radial tyre took place. The tyre was found to be defective, resulting in 250 deaths. The U.S. National Highway Traffic Safety Administration (NHTSA) discovered that Firestone knew the tyres were defective, leading to a fine of $500,000 (equivalent to $1.55 million in 2023).

At this time, Firestone was in deep trouble. The constant negative publicity crippled the company’s sales and share price. Its plants were running at an anemic 59% capacity, it was renting warehouses to store unsold tires, and it was plagued by costly and embarrassing product recalls. After much struggle, the company surrendered to a takeover bid and was finally acquired by Bridgestone, a Japanese company, in 1988.

Firestone’s failure can be attributed to its inability to adapt to industry changes, poor strategic decisions, and ineffective responses to quality issues. This case highlights the importance of agility, innovation, and quality control in maintaining a company’s success and reputation.