Critical Thinking Cafe

Why Businesses (and People) Fail

I'm convinced no one gets up in the morning and asks, "How can I totally mess up my life today?" I'm also pretty sure that few people (there may be some exceptions) enter a business venture with the hope and expectation the company will fail and their investment will be lost.

I just completed presenting a telephone seminar where we talked about how people can more effectively link their strategies with their decisions. My research sent me looking for the reasons businesses fail. There are several lists on the web for your review. As I looked over some of them, I found similarities that prompted me to conclude that businesses (and people) fail because of some combination of the following:

1. Limited resources (Talent, money, time, etc.)
2. Mismatched abilities ("I'm good at X, I ought to be able to do Y as well.")
3. Inadequate planning (A business plan? Who needs a business plan?)
4. Insufficient marketing/sales (Brilliant idea/concept, but who's going to sell it for you?)

At a personal level, the same list looks like this:

1. Inadequate internal strength to withstand external pressure
2. Not doing what you're wired to do
3. A career path that is dictated by circumstances
4. The inability to tell your story and communicate your value to an organization

At the heart of both scenarios is a failure to make the connection between a dream/strategy and behavior/daily decisions. Results at any level are determined by the decisions people make about how they allocate the resources at their disposal. Strategy defines direction; decisions determine results.

A mission statement tells who you want to be and where you want to go--as a company or as a person. But corporate culture and personal effectiveness are determined by how people act--what they do each day. Your business or your life is where it is today because of your choices, not your circumstances. Every reason for failure listed earlier is the result of one or more decisions someone made that resulted in an outcome.

If you don't like the direction of your business or your life look at your strategy. But more than that--look at your choices, the decisions you're making every day about how you pursue and accomplish that strategy. Failure is often the result of never clearly understanding the full price of success. 

Does High Potential Equal High Risk?

Companies making huge investments in developing their "high potential" employees also need to invest in helping those top performers keep from drowning in their own wakes. A recent Personnel Decisions International evaluation of 500 mid-level managers found that 27 percent of leaders who are viewed as high potential employees also have a high risk of demotion, dismissal, or performing below expectations. (The complete study is available from PDI as a free white paper.)

While quantum-leap opportunities can keep a top performer engaged, if the manager/wanna-be executive is not prepared for the distinct challenges that come with greater responsibility, difficulty and possibly derailment can be expected. Fast-tracking high-potential employees is another version of the scenario that has played in business development groups for decades--a top performing sales person is promoted to sales manager where the individual stumbles, struggles, and eventually fails. From sales to finance to technology to marketing the technical and tactical strengths that get you recognized and promoted are not the skills that will make you successful as a senior leader. New executives often don't realize that the independence that got them to a senior role will destroy them once they arrive.

As the Steven Roth Professor of Management at Dartmouth's Tuck School of Business, Sydney Finkelstein has conducted one of the most extensive research efforts into corporate mistakes and failures. His insights are captured in his book titled, Why Smart Executives Fail. Finkelstein says that one of the most prevalent warning signs of executive failure is success and the arrogance that often accompanies it.

Outstanding results in one role won't equate to great performance in a more senior leadership position unless the individual is equipped with the interpersonal skills needed to interface with, lead, and relate to diverse groups of people. "It is important to remember that corporate mistakes are about people," says Dr. Finkelstein.

A successful marketing executive was hired by a world-renowned organization and she quickly set out to accomplish the aggressive agenda placed before her. She successfully achieved what she was hired to do, but she did it without building a network of relationships with those she led and with other departments in the organization. As soon as she completed the initiative, the executive's employment was terminated. Tactical strength resulted in strategic failure.

There are at least 135 very talented, high-potential managers currently on a course toward derailment. How many of them are in your organization?

Is it a Problem When Intellectual Capital Walks out the Door?

In the January issue of T&D magazine, senior associate editor Michael Laff reports that over 900 companies surveyed by Boston-based Novations Group have no method for transferring the knowledge of retiring baby boomers to other workers. The survey was completed by 2,046 human resources and training executives and revealed that the majority of companies seem to have little concern for gathering the intellectual capital of retiring employees before they take a hike out the door to retirement, or more often, to another career.

Is this a problem? Will a lack of attention to "knowledge transfer" become an issue when an operations executive wakes up and realizes that critical client or process information just left for a ski trip in Colorado or started a three week cruise in Russia? While it is easy to find and hire bright minds and new talent, can a person's brilliance compensate for the fact he or she has not traversed the often treacherous waters of client relationships and corporate culture idiosyncrasies?

Long-term success is enhanced by the ability to anticipate and plan for problems. Perhaps the loss of critical information and not knowing the history of a client relationship is a bigger problem than many organizations realize--or it's a problem they'll discover in ways they could easily avoid.

Critical thinking involves using information to assess a situation and plan a course of action. According to Novations Group, a majority of companies need to give critical thought to how they manage one of their greatest assets--the knowledge of the people making their organizations successful.