How companies /organizations decline, and how to stop it
“I’ve come to see institutional decline like a staged disease. Harder to detect but easier to cure in the early stages. Easier to detect, but harder to cure in the later.” Jim Collins
When I first founded EMA, I would panic if we had a bad month. The panic wasn’t completely unfounded, I had limited resources and wouldn’t have survived too many bad ones. Conversely, I would be almost giddy when we had a good month. What I learned over time, was to control my emotions a bit, and keep a more even keel.
Almost every organization, even very healthy ones, experience downturns. On the other hand, very unhealthy ones can have a temporary upturn. The wisdom is knowing the difference between a blip and trend.
Author and business researcher Jim Collins wrote “How the Mighty Fall” in which he chronicled stages of business decline.
Collins suggests there are five stages to decline:
- Hubris born of success
- Undisciplined pursuit of more
- Denial of risk and peril
- Grasping for salvation
- Capitulation to irrelevance or death
Honestly, the one that frightens me the most is number one, hubris (or arrogance) born of success. “I/We are great because we do/know certain things,” as opposed to understanding WHY these things we do or know work for us.
I see this all the time in others, and to be honest, have seen it in myself. All of us like to think highly of ourselves, and if we’ve experienced career or business success, it confirms our opinion.
It’s a recipe for disaster. Arrogant people don’t learn, and the moment you stop paying attention to what’s going on in your organization, the market, and within yourself- you’ve taken the first step to failure.
I don’t accept president Obama’s “you didn’t build that” statement. But, neither is it true that any of us achieve success entirely on our own.
I was fortunate early in my career to work for two incredible entrepreneurs that taught me not only the technicals of the electronic motor drive business, but allowed me to take a leadership role in a growing company. They also put up with a lot of mistakes, and I’m forever grateful to them.
The undisciplined pursuit of more is another big problem. Growth has ruined companies and the people that led them. (See Grow or Die, is that true?)
Denial of risk and peril goes along with hubris. “We’re a great company; our customers love us; our competition is inferior to us.” Often said, without a shred of objective data to back that opinion up.
A number of years ago we landed a big job, in fact at that time, the biggest job we’d ever gotten. It took a lot of our resources, but it was very profitable. When that project ended about a year later, I began to have some nagging unease about our company. We seemed to have lost our edge, but everyone was telling me different.
I hired an outside consultant to help, and an indepth and unemotional analysis confirmed my suspicions. We were losing ground in every area. The large project had distracted me and allowed a number of unresolved issues to fester. We were in denial. Fortunately, we got out of it.
When you find yourself blaming external forces for your problems, you’re in trouble. It’s empowering to take personal responsibility, and its the first step to resolution. IF I am the problem, then I am the solution.
Many companies that find themselves in decline start grabbing at straws. Hire a superstar, go after another market, begin supplying more products and services, can all be desperate attempts. And, the research indicates they rarely work.
Here’s some hints on avoiding decline:
First of all, stay humble and pay attention to your business. Never assume you deserve success; it has to be constantly earned. You MUST provide excellent services and products, and you must be friendly and accessible.
Be sure you have the right people in the right seats in your company. This is a primary leadership responsibility. Building a success culture, and instilling it in your people is your job.
Rather than trying new things, the path out of a decline is often returning to good leadership and business practices. There’s a great story of a fast food company CEO who was hired to pull the company out of a terrible decline. Prior to beginning his job he visited many of their stores.
At his first meeting, people were telling him the reasons for decline, ranging from changing consumer tastes to increased competition. He interrupted them and said, “the problem with this company is dirty bathrooms and surly employees, and we are going to fix that starting right now.” The company did indeed turn around. Never ignore the basics of your business; it’s easy to stray from them.
In a decline.. here are a few steps to consider:
- Put all emotion aside and deal with the scary truth. This may mean getting some outside help. Don’t underestimate your own hubris.
- Avoid the temptation to blame external factors. Accept responsibility.
- Be diligent in rectifying systemic failures in your customer service or operations.
- Do not grab at straws. Hiring the competition’s best salesperson usually does not work.
- Back to basics. Why do customers use you? What’s an ideal customer look like?
- Fight! Most companies can, in fact, be turned around.
Eddie Mayfield