Company transformation and turnaround usually falls into two main categories. Some companies are still profitable but their growth and profitability have stagnated or are starting to fall. Others have been making financial losses for some time and cannot seem to get out of their deteriorating position and are rapidly losing financial and operational strength. These companies or businesses are rapidly heading downhill towards corporate or business demise. Companies which are seriously in trouble have to do crisis management whilst those which are successful but find themselves in the rut of not growing and losing profitability require transformational or incremental improvement management through re-structuring, re-engineering, re-inventing, re-positioning and/or rebuilding their strategies and business models.
Based on my experience of turning around such companies and organisations, I have found that the real cause of why companies go bust or fail is due to the lack of MANAGEMENT LEADERSHIP, and often the business has been neglected and left to run on its own rather than be driven or proactively directed. Organisations and companies which have gotten into financial problems are found to be wanting in their executive leadership and commitment. The main reason for business failure is because people fail, that is, the leader and his team have failed – not the business or the organisation per se.
MAIN CAUSES OF CORPORATE FAILURE
#1: Founder / CEO and management leader loses the vision, passion and commitment
Leadership by example is the best way to energise and grow the business and company. Usually at the start of the business, the founder who is the entrepreneur and chief executive will have the vision, full commitment, passion and drive to start, develop and grow the business. Once the company has established itself, is doing well and making profit, there is a tendency to take it easy and become complacent. Sometimes quick success can also make the founder entrepreneur and management leadership arrogant or indifferent, leading to business blind spots and vulnerabilities. The leadership role starts to weaken and the company moves into an aging and decline mode. The organisation goes through the Dr Ichak Adizes’ organisation life-cycle phases of growth: courtship, infancy, go-go, adolescence, prime, stable and then into the decline stages of aristocracy, early bureaucracy, bureaucracy and finally, death – which is eventual corporate and business failure. Not understanding how to manage and rejuvenate the company at their respective growth stages is a recipe for failure.
#2: No strategic planning or short term and long term strategies
Chaotic and rapid growth without putting systems, processes and the right people in place to manage the growth is akin to the business flying blind. Research has shown that most companies without a well-developed strategic plan could grow themselves into trouble. As there is no long term plan and future direction, companies may find themselves in the dangerous situation of running very fast in the wrong direction. That is, it is not very smart to be efficient in doing the wrong (ineffective) things. Hence, there is a saying that goes, “If you fail to plan, you plan to fail”.
#3: Lack of a distinctive business capability and core competency
Strong and resilient companies find that over the growth period, they develop a distinctive competency in doing their business. They have something unique to really differentiate their business and they continue to value innovate their business. Whereas companies that have not created their distinctive business capability and core competency will often be reactive rather than proactive to business pressures and opportunities. This distinctive capability will differentiate you from the crowd of many other competitors.
#4: Business blind spots
The trouble with managing a business is that because of the haste and pressure on our time and attention, we somehow bypass or make excuses to overlook our business blind spots. Often, we know that it is important to fix certain risk exposure items but because of time and other more urgent matters, we excuse ourselves by putting off these important tasks that we should attend to, until they become and escalate into real problems then we start to fight the fires. We must not allow “the urgent to always drive out the important” tasks that we have to complete for the business long term good. Other blind spots include ignoring the customers’ and stakeholders’ voices, opinions and concerns. Organisations which are complacent are inward-looking and often cannot see blind spots which can destroy their business overnight.
#5: Rigid mindset
There are people who are insecure and are uncomfortable to change, preferring to stick to their old ways. People know that changes are required to turn around or re-structure companies but they cling on to things that make them comfortable. A rigid mindset can drive the business to the wall. Mindset change can only be effected through the efforts and leadership of the CEO by walking the talk and leading by example.
#6: Complacency and indifference
The biggest concern about business deterioration is that complacency will set in when there is lack of leadership and bureaucracy dominates. When an organisation becomes successful, it forgets the hard work and drive that it had started with and tends to be complacent. The hunger for success is reduced and many employees just want to take it easy and enjoy the fruits of their hard labour. This leads to indifference and lack of commitment to the overall growth and continued success of the business. Complacency is a symptom of poor and lacklustre management leadership. It becomes a mindset and attitude issue and once it sets in, the organisation is on its way towards corporate decline.
#7: Resistance to change
Some businesses and companies fail because they refuse or do not know how to change. Over a period, people become accustomed and comfortable to the ways they do things and are resistant to change. This is because they think they either cannot handle the new requirements or they may be taking on more work which will impact the way they are now working. Hence, if change is necessary for the survival of the company, then a change management programme must be commissioned by the management leader or there must be outside expertise to help with the change programme.
#8: Gazing at the navel
When companies are in the success mode, they are lulled into a false sense of invincibility, complacency and comfort. They would continue to focus on what has worked for them in the past and not look forward to what needs to be done to prepare for future trends and opportunities. This is like “driving into the future looking at the rear view mirror”. Hence, not only would they miss the growth opportunities but also find that they have to strive to survive when the next wave befalls them. There is a need to constantly look out into the business horizon to see what is emerging and to be prepared for threats or opportunities.
#9: Loss of talent and teamwork
People make businesses and companies successful. Companies don’t fail; it is the people in the companies that cause the companies to fail. Hence, recruiting, developing and retaining talented and high performing people are the key to continued and sustainable business success and growth. Loss of good people means that the organisation will continue to be weakened and may not grow as fast as it could, Talented people know their worth and are highly mobile. Hence, they need to be engaged and looked after. When a company has ‘A’ graders, that is, top talents who have high potential and are high performers, there is a natural hype, dynamism and excitement amongst the team members, which prevail in the organisation. It is when talented people leave the organisation and the company is left with the ‘B’ and ‘C’ graders that the energy seems to dissipate and the dynamism seems to deteriorate. Always remember that the ‘A’ graders would usually recruit ‘B’ graders and the ‘B’ graders would recruit ‘C’ graders. The net effect of talent loss is that there is a deterioration of work vigour, teamwork and shared commitment. Eventually, work becomes a chore and there is no more fun and commitment in what people do. Good people will then start to look elsewhere for opportunities and better jobs.
#10: Lack of innovation & creativity
The crucial ingredient for the successful company in the 21st century is all about creativity and innovation. Amid globalisation, commoditisation and technological change, companies that wish to move ahead must be creative and innovative in all aspects of its operations and strategies. They must pay heed to the concept of ‘creative destruction’, meaning that they have to assess what products and processes they may have to kill, reduce or eliminate and what other innovative value they have to create or raise for their customers. This is the concept of value innovation promulgated by W. Chan Kim’s and Renee Mauborgne’s Blue Ocean Strategy.
#11: Weak management all round including financial and human resource management
Many companies fail because of poor management all round. They do not possess management competency in the areas of financial, human resource and general management. Global research has highlighted management capability and competency to be one of the biggest causes of business failure. Hence, all companies aspiring to be sustainable and growing need to have competent managers in place to manage and grow their businesses. Continued management development and training is essential for long term corporate success.
In addition, poor asset management and utilisation has been a cause of business inefficiency and failure. The business environment is getting more complex and demanding; hence to manage a company or business today, management leaders need to keep abreast with the new developments and practices in management such as strategic and scenario management, risk management, human capital management, corporate performance management, change management, stakeholder management and technology management.
#12 : Lack of succession planning
Finally, as I have mentioned earlier, people don’t last forever; however organisations and businesses can last a long time and in perpetuity. One just has to look at enduring global companies like Coca-Cola, General Electric, Ford, Microsoft, Procter & Gamble, Toyota, Panasonic, Phillips, Shell. These companies will continue to sustain and grow and they are ever conscious of continuity and succession planning. Great companies always seem to do their succession planning well and with ease.
