How to Spot a Business Disaster Waiting to Happen
Many times it’s easy to spot a company that’s in the midst of failure. The moment you walk through the door, you can feel the absence of energy. Sales numbers are tumbling and profits are weak. People are spending more time looking for their next job than doing their current one. Rumors of the company’s demise run rampant. Finding solutions for the future take a backseat to placing blame for what’s happened in the past.
But there’s another company that doesn’t have any of these obvious signs of distress. Walk through these doors and you immediately feel a burst of energy. This company is a leader in its industry and playing at the top of its game. It has an extraordinary team that is committed to its vision. This is a company that almost anyone would want to work for. Sales are up every quarter. There is little tolerance for mistakes. From the mailroom to the boardroom, people are unusually proud of all they have accomplished. The company and its executives regularly receive all kinds of awards and recognition. As the king of the hill, their market position seems to insulate them from many outside threats. Every thing they touch seems to turn into gold.
This company appears to be the picture of success, a company that all others would aspire to be. But your greatest fear shouldn’t be that you will have to compete with this company. Your greatest fear should be that you become this company. This company isn’t a model. It’s a disaster waiting to happen. It’s dying, and it doesn’t even know it.
How could this happen?
Aren’t the features of this company the ones that all companies want to achieve? The answer is yes – to a certain degree. Developing these positive qualities to excess is a recipe for disaster. Why? Because this company has created an environment that rejects any information that might contradict the way it views reality.
Companies that develop these desirable qualities to excess are unable to adapt when the world changes.
When these companies reach a point where the things that used to work, the things that created success, don’t work anymore, they are frozen. Because they are so good at blocking out unwelcome information, they are blind to the fact that the company is already beginning to collapse around them. Managers often don’t have the information they need to chart a new course until it’s too late.
Success leaves clues, but failure leaves clues too. Here are three warning signs that signal doom for successful companies:
Three signs of impending doom
1. Success. The greatest threat to success is success itself. Leaders of successful companies are justifiably proud. After all, business publications, gurus, and polls have recognized them as number one at this or top 20 at that. But what begins as healthy pride can quickly become unhealthy arrogance. When the awards and recognition become part of the company’s identity, the behavior that made it successful in the first place begins to change. We’ve all heard the saying: “Don’t believe your own PR.” Unfortunately, successful companies often become legends in their own minds.
Every organization, no matter how successful, is vulnerable to decline. There is no law in nature that the most successful companies will inevitably remain so. Of the 500 companies that appeared on the first Fortune 500 in 1955, less than 70 are on the list today. Success often hides the fact that decline has already begun.
2. Vision carved in stone. When a company has an unshakable vision of who it is and where it’s going, the vision can create its own momentum. Sounds great, but here’s the catch: Over time the company begins to do things, not because they make good business sense, but because they align with the vision. This can morph into an irrational commitment and loyalty to a vision no one is willing to question. The more success a company has experienced in the past, the harder it is for that company to let go of the business model that made it successful.
The most destructive part of this extreme loyalty to a vision is that it prevents companies from hearing changes in customer expectations. These companies form a distorted view of reality where they believe that they know what their customers want better than the customer does. This is the attitude that caused RIM to stick to its guns, even though the iPhone provided clear evidence that customer expectations had changed.
3. Overly optimistic. When companies start to lose touch with reality because of an arrogant belief in their success and their company vision, they will likely develop an overly optimistic attitude. And no one wants to disrupt the overly optimistic atmosphere by being negative. Long held assumptions are never questioned, and decisions are rarely put on the table for debate. Critical information from inside and outside the company is suppressed.
Failures and mistakes are not tolerated, which only reinforces the natural inclination of many people to avoid being the bearer of bad news. When a company regularly assigns blame for mistakes, it makes it hard for people to speak up when they see a problem. Suppression of negative news was a direct contributor to the Challenger disaster that took the lives of seven crew members.
If companies like Kodak, RIM, and Circuit City—icons that once served as examples of excellence—can fall from their perch, then no business is immune. If companies like Nokia, AOL, and Blockbuster, once the unquestionable leaders in their industries, can fall from grace, then every organization should be suspicious about its own success.