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Why Good Companies Fail

July 24, 2018


Recently, a customer asked me to develop a seminar for his executive team and board of directors on the topic “Why Good Companies Fail.” A fascinating question which begs to be answered. After all, how could good (and even great) companies like Nortel, Kodak, and others fail? Yet somehow they have. Each the leader in their respective industries; now bankrupt.

My customer represents a solid company, and they have decided to face the fact that if other good companies can fail, so could theirs. Which bring me to my first point – prevention. Stop denying that it couldn’t happen, and start anticipating how to prevent it.

Types of Failure

Although bankruptcy is often the ultimate failure, the reasons why a company can fail in regards to profit objectives are likely caused by failure in other areas.

When looking at any corporation, there are seven goals of corporate responsibility (listed below). Failure can occur in one or all of these areas.

  1. Profit

    To finance organizational growth, create value for shareholders and provide the resources necessary to achieve corporate objectives, a company must create sufficient profit. Unfortunately, companies that fail often classify success as profit and forget that profit is not the game, it is only the scoreboard which indicates if management is or is not doing their job correctly.[i] When a company bankrupts, everyone loses: communities, employees, even governments. Nothing bothers me more than to travel through Southern Ontario and see once thriving towns becoming destitute due to loss of revenue caused by company closure. The overall impact of company bankruptcy on society is poverty.

  2. Customer Loyalty

    Any company must earn their customer’s respect and loyalty by consistently providing products, services, and solutions of the highest quality and value which exceed expectations. Evidence that a company is losing customer loyalty can be seen when customers buy less, stop buying altogether, and/or stop telling others via word of mouth that you are an excellent company to deal with – which can lead to consumers telling others not to buy your products and services. In a modern economy, customers have an extraordinary amounts of power as they can submit reviews, rate companies, and even write blogs complaining about a company, product or service.

  3. Market Leadership

    A company must lead in the marketplace by developing, producing and delivering useful, innovative products, services, and solutions which empower customers and fulfill their needs. Evidence that a company is no longer demonstrating leadership:

  • No innovation; no new products, strategies, or pricing models.
  • Failure to be market driven.
  • Not actively determining customer wants/needs and developing solutions to meet their wants/needs.
  • Not creating new wants in customers.
  • Not identifying unaddressed or unsolved problems in the market.
  • Believing they know better than customers and that because they created a winning product before, they will again (common inside-out view).
  • Believing that their process is the reason a customer buys their product or service.

As a result of these failures, a company could see the loss of new sales, loss of market reputation, and/or loss of stock value.

  1. Growth

    A company must recognize and seize opportunities for marketplace growth which builds on the strength of their core competencies. What does this mean? Simply put – they must always be chasing the next great innovation. Evidence showing that failure is occurring in this goal can be seen when a company becomes complacent and does not consider new ways to create wealth or exploit new technologies or methods. They demonstrate a lack of boldness and courage in relation to risk.

  1. Commitment to Employees

    A company must demonstrate a commitment to employees by promoting and rewarding based on performance and by creating a work environment that is stimulating and reflects the values of the company and the diversity of the global community. The very heart of a company is compromised when a company begins to fail in this area. Evidence of failure:

  • Employees are not going the extra mile.
  • Employees are focusing on looking for another job.
  • Loss of invention and creativity.
  • Employees treat their work as a job – a 9 to 5 routine without any desire to accomplish any more than is necessary to remain employed.

Without employee commitment, there can be no improvement in any area of business activity. It does not take many uncommitted employees to prevent a business from prospering and thereby ceding a significant advantage to its competitors.

  1. Leadership Capability

A company must develop leaders at all levels who consistently lead them to win, grow and thrive as a company. Exemplifying the company’s values in their behaviour, actions, and business practices day-to-day is also necessary. Evidence of failure in this goal can be seen when employees have no goals and no integrated plan to meet goals; the company becomes indecisive, management is self-serving and not serving the company, employees or shareholders. The impacts of failure at the leadership level are:

  • Loss of employee respect, loss of market respect, and potential stock devaluation.
  • Constant learning stops being a priority, in favor of a louder, ‘pushier’ approach all about claiming success and spinning away inconvenient facts.
  • Employees no longer feel comfortable speaking the truth. They may appear to be in step with their bosses’ decrees, but cynicism and careerism increase.
  • Passion for the work at hand dwindles.

When leadership fails, the company will fail. 

  1. Global Citizenship

A company must fulfill their responsibility to society by being an economic, intellectual and social asset to each country and community in which they do business. Evidence that a company is failing in this area:

  • The company does not provide good working conditions with respect to the health and safety of workers.
  • The company does not provide sustainable living wages.
  • The company does not execute honesty and integrity of transactions.
  • The company does not protect the environment from the impact of their operations and as a result, contaminates or degradates the environment.
  • The company does not demonstrate fair and just use of environmental resources (such as water) to safeguard the rights of other users in the local and surrounding communities.
  • The company does not ensure just relations with the host community.
  • The company does not demonstrate justice in the use of the physical and social infrastructure in their community.
  • The company does not pay their fair share of the tax base, by which a community funds its development.

The impact of not being a good global citizen is a loss of investments in education, and therefore undermining the development of the next generations of inventors and employees.

What are the causes of these failures?

In Dr. Jagdish N. Sheth’s book, The Self-Destructive Habits of Good Companies, he takes a hard look at the causes for company failure. He identifies seven self-destructive behaviours or belief systems which companies that have failed have exhibited. These behaviours/beliefs systems are:

  1. Denial: Belief they are not doing anything wrong and they will be successful forever.
  2. Arrogance: Belief they are the best and they are right about everything. They stop listening to the sales guys, the customers, and anyone else because they know “better.”
  3. Complacency: Belief that what we have always done is good enough and we don’t need to change.
  4. Competency Dependence: Belief that their current competency or product is all that they will ever need and don’t need to invest time or money to invent anything new.
  5. Competitive Myopia: Belief that no new competitor will ever be able to beat them.
  6. Volume Obsession: Belief that bigger is better and that growth in revenue is more important than margins.
  7. The Territorial Impulse: Belief that I must protect my turf, my organization, my business unit, my department and I don’t care about the rest of the company. The company culture becomes one of protecting one’s turf rather than improving the company’s results.

What is the root cause?

I think Jag’s book is an excellent document to help detect that failure has happened or is in process, but it falls short of addressing the root cause for these behaviours/belief systems. Two questions must be asked:

  • Why do people behave this way?
  • Why do leaders who have been successful allow this to happen?

From my extensive background, I know that to solve a process problem, you must uncover the actual root cause and not try to fix the symptom.

I have also been involved in several start-up initiatives. In each, I’ve noticed a key ingredient to their success was the commitment of all that are involved. The managers and employees were committed to the firm or idea that the firm was attempting to accomplish.

The key ingredient is a committed heart and solid stewardship. Stewardship requires a person to invest their heart, not just their time. A successful entrepreneur will put their whole heart into their endeavour. It consumes them. They always think of ways to improve their products, methods and market penetration, and they invest everything to make sure the venture succeeds.

As a company succeeds, it takes less heart and commitment to continue to run. Leaders often do not commit their hearts to the firm, and I suggest that this is where the problems begin. These manifest as a lack of passionate commitment, indifference to real issues, and poorly thought out approaches to the work of management. Indifference becomes a cancer that can eat through a company and can affect most people. They don’t care – which eventually will lead to the downfall of the firm.

Leadership must serve with their whole hearts and cannot be guns for hire. When I was at HPE, I looked to Bill Hewlett, Dave Packard, John Young, and Malcolm Gissing as examples of this kind of stewardship. All of these leaders were committed to the firm. They poured their hearts into the firm, and we all drew strength from their examples.

Leadership is the key in all initiatives. Leaders serve. They serve by investing their whole heart – not just their time.

Characteristics of a Steward in Business

A steward heart is one that is committed to their shareholders and demonstrates these characteristics:

  1. Humble: Humility is the opposite of arrogance, they do not assume that they are always right, are open to the ideas of others, and are teachable.
  2. Faithful: True servants do things when nobody is watching. They are good stewards of their shareholder’s money and trust.
  3. Diligent: They work hard. They are not slothful, greedy, lazy, or selfish; these are the opposite of stewardship.

Self-Assessment

It is hard to lead any organization in these difficult times. Shareholders and employees alike need to be fully committed. Perhaps in the above discussion, you felt a few moments of discomfort and are beginning to wonder what you should do…? There is a solution, and the issues can be resolved if action is taken to change. Here are a few steps to put you on the road to recovery.

Personal
  1. Sincerely look at yourself and decide if you are giving your whole heart to the firm or only your time.
  2. If you are just giving your time, admit that you have lost heart for your firm, and your job.
  3. Assess how far the problem has gone in your own lives. Is it superficial or deep-rooted?
  4. Decide to change; if you cannot give your whole heart, it is time to let someone else lead. If you decide to give your whole heart, set clear, measurable outcomes that describe what your behavior will look like if you are giving your whole heart.
  5. Ask someone to hold you accountable to achieve these outcomes.
Corporate
  1. Lead your management team in a time of self-examination and critically review your firm. Look for shreds of evidence of the seven self-destructive habits.
  2. If you detect these behaviors, admit that they are manifesting in your firm.
  3. Assess how far the problem has gone in your company. Is it superficial or deep-rooted?
  4. Decide to change and establish clear, measurable outcomes that describe what your company will look like if the behavior was gone and what tasks each executive will do in their sphere of responsibility to eradicate the practice.
  5. Assign an auditor to hold your executive team accountable to accomplish these outcomes.

A good servant is a good steward; a good steward will always do what is best for their shareholders and employees. Today, as never before, we need all of us who are called to lead businesses to become good stewards to prevent more business failures.


Follow-up Material

At FoxNet, we understand the need for organizations to have good advice. To help our customers identify where IoT and Hybrid IT solutions may be of assistance in their municipality or businesses, FoxNet provides multiple IoT Education Sessions, Workshops and Hybrid IT Strategic Planning services.

During the IoT Workshops, FoxNet presents detailed case studies of cities and corporations that have implemented IoT solutions to address common city and business issues. FoxNet facilitates a discussion on each of these areas and collects real IoT business scenarios and functional use cases from the workshop attendees. The result of the workshop is a report containing a list of potential IoT pilot projects and a roadmap on what steps need to be taken to address each defined issue successfully.

For additional information on our IoT Workshop, reach out directly to John Chiappetta, Head of IoT, North America at jchiappetta@foxnetsolutions.com.

Recommended Reading

  1. The Self-Destructive Habits of Good Companies: …And How to Break Them [Hardcover]Author: Jagdish N. Sheth ISBN-13: 978-0131791138
  2. Servant Leadership: A journey into the nature of Legitimate Power & Greatness. Author: Robert K. Green leaf ISBN-13: 978-0-8091-0554-0

 

About the Author

Bill Dupley is a Digital Strategist at FoxNet. He has led IT transformation and strategic planning teams for over 50 companies and governments worldwide and bring extensive experience in IT & Business Strategic Planning, IT process design, and enterprise architecture. Bill has held several positions over his career including the Cloud Chief Technologist for Hewlett-Packard Enterprise Canada and Director of Strategy and Business Development for HPE Canada Consulting. He is a graduate of Ryerson University, a former member of the HPE IT Global SWAT Team, and a member of the Open Data Center Alliance Cloud Maturity Model authorship team. He is dedicated to helping customers equip themselves rapidly for our ever-changing world.

 


[i] Gary Hamel: http://blogs.wsj.com/management/2009/06/01/why-companies-fail-part-i/

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