Failure to Adapt Kills 2 Many Companies

Posted on | December 17, 2009 | 14 Comments

When everything from wealth to glory is on the line, athletes aren’t the only ones who freeze, choke or come up short. But in business, that shouldn’t and doesn’t have to be ‘just the way it is’.

When Your Company Hits the Wall, Business Psychology tells us Why You Can't or Won't Recognize and React !?! It’s entirely normal, if you’re normal, that to some extent for some period of time your brain’s higher-level thinking processes will shut down when adversity strikes.

And no matter how much of a brave face you put on or how hard you try to come across looking detached, cool and calm, all of that can’t and won’t prevent you from having this kind of reaction. That’s because only psychopaths don’t freeze up when trouble or threatening situations happen. (All psychopaths care about is achieving their own selfish goals, no matter if that means ripping you off in the process, or arrogantly ignoring problems, or irresponsibly jumping a troubled or seemingly sinking ship.)

In such circumstances, the key risk business owners, CEO’s, lenders and investors really need to guard against is having their company go bust or suffer great damage as a result of the top decision maker(s) becoming functionally ineffective, or inappropriately responsive, as a result of the leader developing pathological tendencies or their falling into a prolonged mental state of paralyzes due to one or more causes.

Business Risk Misassessment

Unfortunately, it is too typical for non-psychopathic people in top level company positions think that mental paralyzes is something that can’t, won’t or hasn’t happened to them. This is similar to how the same people are likewise prone to materially under estimating their company’s risk of business collapse. (Psychopaths, for their part, are arrogantly overconfident and naturally dismissive of problems they are responsible for or not interested in addressing.) So, if you go on thinking you or your company are, or will be, immune from the laws and limits of human psychology or business economics because you or they have been so successful / strong / hard / tough-minded or whatever in the past, you will be seriously kidding yourself and threatening your company’s survival.

In the July 2009 article Cocksure written by Malcolm Gladwell for the New Yorker magazine, he wrote about this very issue of the psychological reasons why many CEOs and other top executives to go non-responsive in the face of serious threat. His work principally focused on another aspect of the cause such non-response failures which he labeled as the “illusion of control”. Gladwell describes this as being when a person’s confidence spills over from areas or circumstances where such may be warranted into areas or situations where it is not. This he pointed out happens when people become overconfident and start blurring the line between the kinds of things that they can control and the kinds of things that they can’t. For companies, having management fall prey to the combination or sequential effects of overconfidence and mental paralyzes is a real business killer.

Putting aside for a later article the significant problems and huge losses that psychopaths cause, let us consider some examples of threat response failures, including two recent first-hand encounters with what bankers and bankruptcy/insolvency professionals call ‘debtor denial‘. After that, we’ll then examine the psychological truths that are behind why way too many well-respected, otherwise-psychologically-normal top level business people kill their companies through their failure to appropriately adapt/respond to adverse changes in circumstances.

Too Stressed Out to Recognize & React?

Have you heard the story about Empress Elisabeth of Austria who, after being attacked and stabbed, proceeded to board a ship, unaware of the severity of her condition, only soon there after bleed to death as a result of a puncture wound to the heart while uttering as her last words, “What happened to me?”; Probably not, but this is a tragic and true tale from 111 years ago that has relevance to our business world today.

That’s because this is a classic example of ‘Acute Stress Reaction’, a debilitating psychological condition or mental state that way too many business owners and CEO’s fall prey to when they suffer either a significant loss, or face a daunting threat, or experience a big business reversal.

To highlight the serious problems ‘Acute Stress Reaction’ can cause, I have two business stories to share with you now about illogical and inappropriate responses I have witnessed this past year. Once told, I’ll describe exactly what ‘Acute Stress Reaction’ is and what business owners, executives and, importantly, company directors can and should do about it.

Two Cautionary Tragic Business Stories

Suffering From Corporate Shell Shock Now over the course of a career that has included being a corporate banker, senior executive in public and private companies and a management consultant as well as leading five turnarounds, I have seen more than my fair share of troubled and dysfunctional companies unfortunately. Nonetheless, it never fails to amaze me how oblivious and unrealistic top people in struggling companies too often get. Indeed, I had a rather unbelievable business experience in that regard just last week.

It occurred when I met with a public company director who interviewed me about joining his company as their new, take-charge, entrepreneurial CFO. This opportunity came up as a result of my getting a great referral from a close business friend on mine. However, the problem is that due to their visionary, overly strong minded PhD scientist of a CEO, the only real thing the company has been successful at has been raising money.

Over the last ten years, after using up $12 million in financing, this healthcare technology company continues to have no material, recurring revenues and no intellectual property of any note. Worse is that the one product they offer delivers no compelling consumer advantage. And even more concerning is that after having just hit up their principal backers for another $1 million in funding through a non-brokered financing deal, I suspect they have now pretty much tapped out their funding sources. So what that means is, in all likelihood, they will die in six months or so unless they pull a ‘big juicy rabbit out the the hat’ – something they haven’t been able to do as yet and I doubt an extra six months will change the picture much in any way at all.

But despite this, the director I met seemed quite unfazed by his company’s obviously challenged circumstances. Indeed, in light of the kind of picture he painted for me, you could best characterized his attitude as: ‘don’t mind the bleeding – it’s business as usual with us – all you have to do is take charge of the finances and sort out which opportunity we should take’.

Now, with the director not knowing how I have known about this company for about 2 years now, what I said to myself was: “Really: only financially challenged you say?!? Not from my perspective!”

Before this, the last company I encountered with the same sort of misguided management mindset was W.C. Wood, the Guelph Ontario refrigerator manufacturer. A year ago, they went looking for a new CFO to come on board this company which had been acquired by a New York based private equity firm a year earlier. Despite the ‘business as usual’ portrayal cheerily regurgitated by the executive recruiter that I talked to, the scuttlebutt on the street had it right that they were ‘toast’ for sure enough, the company soon there after sought bankruptcy protection in May 2009.

Yes, I’d say W.C. Wood is one PE investment that needs to be written down to basically zero. And, unfortunately from my experiences, similar lead-up commentary could have and should have been said about most of the turnaround situations I have been called in to clean up. Which is why I ask: how do the ‘big brains / smart money’ types in those PE, VC and like-minded investment firms backing these supposedly promising growth companies get things so wrong with such regularity? Indeed, from all my experiences in managing troubled loans and leading turnarounds, I would say that boards and company executives are all challenged to deal with adversity properly, for most get struck, often near permanently, in the first stage of the grieving process: denial.

So, why is it that when companies struggle, particularly when they face death by bankruptcy, the people in charge have a really difficult time reacting in appropriate, timely ways to the difficulties faced? (Could the answer here explain what drove the Roman Emperor Nero to play his violin while most of Rome burned in 64 CE?)

Corporate Shell Shock

Reckless Risk Management Kills Given how typical it is that directors, CEO’s and business owners can’t or won’t see and react to obvious ‘elephant’ issues that are rampaging around and destroying the companies they control, there has to be a simple and straight forward psychological reason for such circumstantially inappropriate behaviours. And there is. In at least 80% or more of such cases, I believe the reasons why this occurs is that leaders of struggling companies (a) either become inappropriately overconfident, and/or (b) fall into a form of mental paralysis that causes impairment of their higher level thinking processes to such an extent that they become dysfunctional as a result of their going into ‘corporate shell shock’!

And in view of the really tough economic times we all have been going through over the last two or more years, it is no real surprise many of those leading the charge today in struggling, financially challenged companies are by getting totally stressed out now and becoming managerial dysfunctional as a result.

Shell shock or battle fatigue are commonly used terms to describe what psychologists call combat stress reaction. Usually we think of these as military terms used to categorize a range of dysfunctional behaviours resulting from the stress of battle which decrease or wipe out the combatant’s fighting efficiency. However, most of today’s warriors are economic and the typical modern battlefield is the marketplace where tragedy and carnage is measured in the size of fortunes lost and the number of dreams of glory dashed. But no matter if we are talking about the battlefield or the boardroom, the most common symptoms that over-stressed combatants show today are fatigue, slower reaction times, indecision, disconnection from one’s surroundings, and inability to prioritize. And while combat stress reaction is generally short-term when the stressing experience is similarly short-term, it can and does lead to longer-term acute stress disorder, post-traumatic stress disorder, or other such prolonged debilitating psychological conditions if the stressing experience is particularly intense or prolonged or both. Importantly, like with torture, everyone under stress has their own dysfunctionality onset point. The only questions about this are: (i) at what point will someone become dysfunctional, (ii) how long will their dysfunctionality last, and (iii) what harm or damage can, could or will result from their becoming mentally impaired in this way?

Acute Stress Reaction is a stress-reaction related cognitive disorder (i.e. impairment of a person’s thought-processing or decision-making abilities) that results from a traumatic event or events in which the afflicted person is a victim or witnesses of an hurtful event or series of such events that cause them to suffer extreme, disturbing, unpredicted fear, stress, and sometimes direct physical pain and that involves or threatens them with serious injury, perceived or anticipated serious injury (usually to someone else), or death. The symptoms show great variation but typically they include an initial state of "daze", with some constriction of the field of consciousness and narrowing of attention, inability to comprehend stimuli, and disorientation. This state may be followed either their going non-responsive (i.e. ‘freezing’) as a result of their further withdrawal from the surrounding situation (to the extent of a dissociative stupor in extreme cases), or by their ‘choking’ as a result of becoming over agitated and engaging in ineffective, possibly excessive, activity.

In both of these descriptions given above note how the references to victims of ‘Shell Shock’ and ‘Acute Stress Reaction’ all suffer significant mental dysfunctionality of one sort or another. Further, appreciate how anyone who suffers from such shock will, if at all possible, hide the fact from others because of the widely understood general disdain that people have for such perceived weakness. This fact was no better exemplified than by ‘Old Blood and Guts’ General George S. Patten when he slapped a hospitalized World War II shell shock victim and accused him of being a coward and by the disdain and derision heaped on athletes who lose because they blew a lead in some sporting competition.

This is why companies in precarious situations and those with negative cashflows are at grave risk of loss or failure due to the debilitating impact ‘Corporate Shell Shock’ and / or “Acute Stress Reaction’ can have on their company’s leadership. Today, this is particularly true given the prolonged and serve Great Recession that we have just gone through, and in so many ways, continue to suffer.

Managing ‘Failure to Adapt’ Risk

You can take a measure of comfort from the fact that, like how shock and trauma that hits those involved in a severe car crash or the like is treatable by emergency room doctors, so too is ‘corporate shell shock’ manageable with appropriate third-party help.

But to get this type of result requires that company leadership do the following two things when they have suffered a material corporate trauma such as negative cashflow that goes on for two quarters or more:

1) The most important thing company leaders must do is recognize when their company has likely suffered a material trauma due to some event or condition.

This is because failure to adapt and react in situationally appropriate and timely ways is THE leading cause of corporate death for struggling companies, which is why exercising an abundance of caution is the key in such situations for business leaders, and those that advise, control or oversee them.

Assassin Stabs Austrian Empress Elisabeth Getting macho, dismissive, overly optimistic, or otherwise arrogant the problems, prospects and challenges for recovery can easily lead companies to needlessly let themselves bleed to death just like what happened to Empress Elisabeth of Austria in 1898.

That is why I say: don’t be afraid of having a caution-overreaction when there is any question of protecting your company’s financial health and viability.

2) The next important priority is to get appropriate third-party help quick because time is of the essence and there is too great a risk you, your board, and even your longtime advisors will not appropriately react because you are not and cannot think straight or see things as they really are. This where you run the greatest risk of loss due to over-confidence, arrogance, or inappropriate, even irrational, dismissiveness.

If something unexpected or threatening has happened and/or continues to impact your company, get the situation checked out by an appropriate third-party expert. This is vital because those who are in charge, or who have big vested interests in the company that is struggling, are too close to the situation and too tied up in how things were in the past to see the current circumstances in an appropriately unbiased, balanced way. To put situations like this into another context so that you can better appreciate your need for third party, unbiased expertise, consider how everyone but a cavalier foolish person would get themselves quickly to the closest hospital emergence center super fast so they could get life saving treatment from the triage doctors there if they were injured and bleeding from a serious car crash.

So, if that is how you would deal with saving your own life, why not show the same sort of consideration for your company if and when some bad, unplanned thing befalls it? Consider this cheap and effective insurance to give your company its maximized opportunity to stop its bleeding quickly so it can continue, grow and thrive.

Finding the ‘Corporate Shell Shock / Reaction’ Treatment for You

It is important that to realize that, if your company is suffering negative cash flow, its economic life blood is absolutely draining away. Sensible people all know that such situations need to be dealt with quickly or corporate death will come all too fast (remember the brain is the last thing to die, and if it is disconnected with the rest of the body, it will not feel any of the pain in the lead-up to death).

Furthermore, don’t forget that after any serious car crash occurs, we all would think it really foolish for any victim to go on as nothing threatening happened, or worse, if they decided to try to treat themselves when expert medical care is readily available. So don’t take that kind of approach with what might be your most important asset, your business.

Here is a table that can help you choose what type of third-party corporate care your company will need if you find your company bleeding and in a bad way:

Company Crisis / Turnaround Help Table

Help Is Only A Call Away If You Need It

Just because you as the business owner or CEO or board of directors might find yourself struggling to adapt to adverse changes in your business doesn’t mean that your company has too as well. Affordable, professional help is available from a number of very reputable small, medium and large service firms. All you need to do is act and ask. A great first step is to check out your help alternatives.

If you are unsure about what situation your company is in, or you have a question, or you could use help to figuring out what needs to be done, call me.

Related Subject Matter Articles:

- from Biz Money Matters:
Why CEOs are Blind to Trouble!
Don’t Lead Your Company into Trouble

- by Malcolm Gladwell:
Cocksure: Banks, battles, and the psychology of overconfidence
The Art of Failure: Why some people choke and others panic

© Blog.TonyJohnston.biz & Compass North Inc. 2009

Article by –

Tony Johnston, CMC, CGA, MBA, BA (Econ)
President
Compass North Inc.
18 Balding Court
Toronto ON
M2P 1Y7
Office: 416-342-5652
Mobile: 416-346-4140
www.CompassNorthInc.com
www.CNiRapidResearch.com

Tony Johnston is a business results specialist, top level executive and management advisor. Having successfully led 4 turnarounds and with many significant operations, deal making and finance oriented accomplishments to his credit, Tony helps companies drive:

› top line growth (revenue)
› bottom line improvement (profits)
› cashflow management (credit line control)
› growth strategy (more / new)
› financing & stakeholder relationship management (debt / equity)
› enterprise value maximization (mkt price)
› acquisition planning & execution (find / close)
› divestiture preparation & execution (prep / negotiate)
› information gathering (competitive intel / market research)
› crisis control (turnarounds & wind-downs)
› enterprise leadership (CEO / CRO / CFO)

Compass North Inc. is a management & advisory services firm that helps companies achieve important, challenging operational, financial and transaction oriented goals. Examples of what we do include helping companies and their owners:

– make better decisions by providing customized competitive intelligence,
– grow by crafting strategic plans and implement them,
– get turned around by dealing with their debt or other business problems,
– borrow more money and/or raise more equity, and
– plan, prepare, negotiate and close acquisitions, divestitures and ownership
transitions.

Bottom-line: The benefit that Tony and Compass North Inc. deliver is helping company owners maximize both what they earn while they own their business and what they bank when they sell.

> Follow me on Twitter @CompassNorthInc

Comments

14 Responses to “Failure to Adapt Kills 2 Many Companies”

BizSugar.com
December 17th, 2009 @ 10:09 pm

Failure to Adapt Kills Too Many Companies | Biz Money Matters |…

When everything from wealth to glory is on the line, athletes aren’t the only ones who freeze, choke or come up short. But in business, that shouldn’t and doesn’t have to be ‘just the way it is’. There are ways to react and adapt to the stress….
Tony Johnston
December 28th, 2009 @ 1:57 pm

The following are 13 Comments that were posted on the LinkedIn Corporate Planning & Global Industry Segmentation Group Discussion page:

1. Alan S. Michaels: President, eCompetitors Inc – Posted Dec 23, 2009

Hello Tony,

I agree to a great degree; and I especially like and agree with your observation that:

"It’s entirely normal, if you’re normal, that to some extent for some period of time your brain’s higher-level thinking processes will shut down when adversity strikes."

To All,

I believe this is a well written article – I recommend reading it (and, if you’re like me, it’s one of those articles best read twice with a fresh cup of coffee because it’s more than the typical 30-second blog article.)

2. Tony Johnston: Executive / Business Advisor – Business Development, Operations, Finance & Strategy - Posted Dec 23, 2009

Alan,

Thank you ever so much for your comments and compliment, both of which are greatly appreciated. I hope other readers find the value and meaning you did.

Tony Johnston

3. Kristen Ann Winslet: (Corporate IT Finance) Business / Financial Analyst – & – Project / Change Management Governance, Metrics, Budgets, Analysis, Tracking, Reports – Posted Dec 23, 2009

Proper ‘Governance’ is crucial in today’s business world.

4. William Schreiber: Director of International Development at Churchs chicken – Posted Dec 24, 2009

I would agree also. I would also like to add that I am seeing from some companies that I have had conversations with many of their people have become risk averse. They are so worried about thier future and what might happen, that they do the the must unthinkable thing, they hide thier heads in the sand.

5. Seena Sharp: Author, Competitive Intelligence Advantage – Posted Dec 24, 2009

Agree that it’s due to ignoring or dismissing threats. Equally applies to ignoring or dismissing changes – which is "code" for opportunities. But change requires deep thinking about how to understand and react to something new – which execs & managers don’t make the time to figure out. And then there’s the risk that a company’s reaction to change will not be the appropriate action.

For me, this is just another example of the necessity for constantly doing competitive intelligence on the entire marketplace – to recognize these changes sooner. A company need not react immediately; if they notice change early enough, they have the time to monitor how it’s developing and determine how/if it makes sense for their company.

The better the due diligence, the less the risk.

6. Melvin Reed: VP Marketing at My Service and Support – Posted Dec 24, 2009

Can you say Dinosaur? They are not extinct. In fact, they are doing very well and may yet take over the world again. All it takes is a very well constructed plan.

7. Nick Luthwood: International Strategy Expert – Posted Dec 24, 2009

For me it isn’t a question of adaptation, but one of bias in judgement. Legacy outlooks and an inability to move thinking for a host of reasons seems more likely.

That is why I prefer to listen to life’s failures in business. Failure often shows people why they are wrong, but success reveals little. This can be seen in capital structure (look at the private equity model and banking operations), in changing markets (look at EMI and motor companies) and unwillingness to accept totally new economics (look at shipping and real estate) to name but a few. Such levels of bias induce an approach where overconfidence is rife and risk is underappreciated. For the roots of this you have to look at Kuhnian methodology and an inability to change thinking, which is I believe distinct from simply burying one’s head with higher functions shutting down.

I think that given the field we work in, there is a wealth of information, but we cannot use it as it is in the form of data, and that is even harder for people without our skills and manpower to use it well.

In conclusion, I would say that smaller business, robbed of the ability to control prices and customer choice to the extent of larger players, fail as a result of heavily biased thinking, refusing to accept that the world has changed, with their judgement forged by blurred feedback loops and their customers wanting something a little different in terms of price or offering.

8. Bob Bell: Independent Mining & Metals Professional – Posted Dec 24, 2009

I like the discussion and I like your table that shows the various stages of decline. I like to look at a business life cycle in a bell curve. Growth/innovation on the left side, business maturity on the top and your decline stages on the right. Failure to adapt really starts as the company moves from growth/innovation into maturity. Typically the company believes they have the answers to success in their chosen market. The reality is that markets and customers are constantly changing and these companies are really not listening. Inward thinking management is the issue in my opinion. The focus becomes, i"m good and customers need me. If you are truly a market and customer driven company you will be looking for market changes during the growth phase and adapting in time to enlarge the entire cycle curve not just holding off until decline. The paralysis you describe is set early and is part of the company culture, is very hard to change and by the time you get to decline it is typically to late.

9. Seena Sharp: Author, Competitive Intelligence Advantage – Posted Dec 25, 2009

I’d like to build on Nick’s comments re the importance of failure. We also need to recognize the value of success – particularly from competitors and other industries. These successes likely indicate a new / different strategy, thinking, features, etc. – which often represent a recognition of change and a successful response to change. My point is that success from others should be noted and analyzed. Some companies identify changes before others and they are good to monitor and understand.

10. Michael Henry: Head of Service Strategy and Operational Excellence for Silicon Valley at Ericsson – Posted Dec 25, 2009

Hi Tony,

Thanks for the well written article. I would like to share a few comments; I hope it doesn’t steer the conversation off course.

I’ve noticed a disturbing trend involving too much focus on the game and ignoring changes in the size of the field. In so many cases, I see companies focusing to improve short-term performance while failing to notice that what was once a wide and deep field of play has now become narrower and much less forgiving. The pitch has become a razor’s edge, and companies have over-specialized in key areas that increase risk to unacceptable levels.

For example, companies that have aggressively leaned their operations are much less resilient…they are more susceptible to perturbations in the supply chain or systems failures. And in a very competitive, narrow market segment, they may not be given the time to recover.

I also believe the way information moves through a company today, with few exceptions, has not kept up with the increased pace of change in the markets. Companies lose their resilience because the feedback mechanisms by which they sense and respond to their environment have to travel though too many layers of delay and distortion.

It’s no wonder that executives are shell shocked and paralyzed.

Rather than reactive measures, I believe what’s needed for the long-term health of our economy is a return to an awareness of the need for resilience. Teaching executives how to balance short-term objectives and long-term sustainability is critical.

/Michael

11. Richard LeSesne: Chief Strategy and Technology Officer at ActSense Corporation – Posted Dec 26, 2009

The big question is how many companies get into trouble by adapting (either when they shouldn’t have, adapting improperly, too often or losing sight of the core business because of a preocupation with adaptation) versus how many get into trouble by not adapting. Where is the biggest metrically factual risk?

Many years ago, McKinsey & Company had a report that was very sought after by their key clients that dealt with the real cost of change and adaptation. It outlined a methodology for helping companies get out of markets where excessive change or required adaptation impacted profit margins and market opportunities. It essentially balanced the cost of change and adaptation versus the market opportunity, the financial resilience and staying power of a firm in a specific market segment.

The real guts play is when a CEO abandons a market segment because they have found that the cost of adaptation makes that business financially unattractive. What to do next? Milk it or sell it?

Had IBM adapted and spun off its mainframe business today’s IBM would be a lot less profitable and successful as the age of cloud computing comes into vogue and the mainframe now becomes the cloud computing server in the sky!

12. Adam Hartung: Advisory Board Member at Lake Forest Graduate School of Management – Posted Dec 26, 2009

We reviewed over 800 cases in chronicalling the failure of businesses. Yes, the rate of failure is too high – and in fact is at record levels – despite the army of MBAs produced the last 20 years. The chief cause was inability to adapt to changing market conditions. Businesses can escape the bell-shaped curve of growth/maturity/failure only if they overcome lock-in to historical success and use market inputs to adapt. Read how the top 7% of companies produce consistent growth through adaptation in "Create Marketplace Disruption: How to Stay Ahead of the Competition" on Amazon.com

13. Richard LeSesne: Chief Strategy and Technology Officer at ActSense Corporation – Posted Dec 27, 2009

Your comments about the army of MBAs reminds me of a seminar I attended in the mid 90′s. I was actually paid $1,000 to attend, rather than the usual seminar where the student pays to attend. The seminar was held at the Duke Business School during the holidays in a nice auditorium, and the session was sealed off from the prying eyes of the business school profs and studenmts with very heavy security. Even the head of the business school was politely shown the door in his own facility, as I recall vividly! It was announced that the meeting had been sponsored by the founder of Wendy’s. Travel had been paid for out of town attendees who stayed at some hotel on the campus.

Only one rule was followed during the session. No passing of business cards, no selling or networking, everyone was to be civil or be asked to leave and no one had to introduce themselves if they didn’t want to be identified as an attendee. No badges.

Once invited, your background was checked closely to make sure you met the entrance requirements. The only requirements were that you had to have been either an angel investor or top three founder of a start-up that was in the black and operating or been successfully sold off. I qualified because I had been an angel investor on one that had been sold off successfully. A fascinating set of attendees, for which, incidentally, a roster was never produced. It was almost exclusively a fully participative session, with very little in the way of presentation. The objective was to find a common ingredient to success in entrepreneurship.

I learned more in those 10 hours than I had in any other seminar.

During one of the conversations, the crowd was asked how many had an MBA. Out of about 50 attendees, only two raised their hands. At least 6 had no degrees at all! Then one of the angel investors said: "We only hire MBAs, we never use them as founders…too fixed and conservative in their thinking and few even look at the inverse of a solution. They can’t stand being told their solution may have more facets and opportunities or may be in itself a problem. There is never a 100% solution….that’s why they can’t found companies…it’s the case study method that ruins their minds!"
Tony Johnston
December 28th, 2009 @ 2:21 pm

The following are 5 Comments that were posted on the LinkedIn Logistics & Supply Chain Networking GroupDiscussion page:

1. James Barbello: Account Director N.A. Supply Chain Walt Disney Studio Home Entertainment at Technicolor – Posted Dec 23, 2009

Tony of course you are correct.

Where I have lost the plot in the past decade however is when it comes to boards of directors and stock holders.

It is not difficult for a CEO or President and their management teams to become complacent and fail to adapt. But that is precisely why a diverse and vibrant board that is not afraid to act is critical.

The key role of the board is to do whatever is needed to course correct when a given administration is clearly not getting the job done.

Now there are plenty of examples in the last century where boards would wait too long to inject themselves into a given crisis of leadership to force correction but they would do it and more often than not they would take action long before the company was at the brink of collapse!

Over the last 10 years however there has been a complete failure of boards to act at any point in the cycle.

I just don’t understand what changed, why have so many become so willing to just sit by and watch a company fail!

Boards and stock holders would do well to study the example set by Roy Disney. He saw a need for change and he was not afraid to act, not just once but twice!

On both occasions (Eisner and Iger) many thought Roy was acting prematurely, they said "things weren’t that bad", but Roy understood that you can’t wait for the train-wreck.

Great leadership requires clairvoyance and a willingness to act even if others do not see the need.

2. Jason Walker: Supply Chain Consultant at IS Pharmaceuticals Ltd – Posted Dec 24, 2009

I agree.

It’s hard to put a finger on why so many boards become stagnant and blind to the forthcoming disaster.

Maybe it’s human nature, once they have satisfied their needs (Maslows’ hierarchy) they become complacent. A feeling of security can blind a person to the threats that still exist.

I also see in the West to many people still in the old ways of adversarial approach to departmental management. So many times do they blinker themselves to working as a team and segregate themselves into their little empires and fight amongst each other at the detriment of the business as a whole…while the infighting goes on the competitor makes it’s move….

Believing your own press also blinds too many company’s into thinking that no one could possibly be a threat to them…I’ve seen this and it’s not pleasant, the market leader suddenly looses their market share over night…

There are so many reasons…..Lack of vision, lack of drive to push through changes etc…

Good topic.

3. Chris Barton: Operations Professional – Wholesale Pharmaceuticals – Posted Dec 24, 2009

Couldn’t agree more, too many companies have boards of Directors that are segregated from the sharp end, they are too busy fighting and posturing among themselves for their own gain to see the reality, in most organisations exists a detached senior management structure in which exists a circle of influence, there is basic ignorance of proper listening skills and emotional intelligence.

Unqualified decisions are made (or not made) by the few and forced down the line, very little collective decision making involving middle managers exists.

We need to drive decision taking and problem solving as far down the hierarchy as possible, allowing those line managers at the sharp end to make decsions they are trained to do.

Happy days……Chris Barton

4. James Barbello: Account Director N.A. Supply Chain Walt Disney Studio Home Entertainment at Technicolor – Posted Dec 24, 2009

On a side bar to the discussions about leaders being disconnected from reality……………

In the U.S. immediately following the broadcast of the Super Bowl (our version of the World Cup) the same Network (CBS) is going to run the premier of a new reality show that shows CEO’s working "undercover" at the lowest level positions within their respective companies.

While not a huge "reality fan" I am curious and will probably watch it.

5. Chris Barton: Operations Professional – Wholesale Pharmaceuticals – Posted Dec 24, 2009

James,

Reality being the operative word…. A sort of "return to the shop floor" I would say they should do this as a matter of procedure on a regular basis rather than being paid to do it on a novelty basis.

Bottom up process beats top down any time!
Tony Johnston
December 28th, 2009 @ 2:31 pm
The following are 4 Comments that were posted on the LinkedIn Strategic Business and Competitive Intelligence Professionals Group Discussion page:
1. Geary Sikich: Principal at Logical Management Systems, Corp. – Posted Dec 23, 2009
The biggest single threat to an enterprise is staying with a previously successful operating model too long and not being able to adapt to the fluidity of situation. Socioeconomic randomness requires operating models to become responsive to change as there is no such thing as a “typical” failure or a “typical” success today.
1. Scott Yaw: Brand strategy, identity and competitive intelligence consultant – Posted Dec 23, 2009
Agree, kills companies and careers. Internally, most companies and business leaders are very focused on hour by hour management of their organization, customers, product lines, marketing, sales, R&D, making numbers, corporate politics…you name it. Even though the marketplace and consumer expectations have radically changed, many companies still try and work with 25-year old business strategies and tactics. Some of our clients have about half the internal resources they did in years past. Very few companies today really understand their immediate competitors and have virtually no actionable intelligence on new competitive threats. No wonder they can’t adapt quickly.

It’s our job to help them and we’ve had a busy year.
1. Rich Lutze: Senior Executive – Marketing Strategy, Sales and Operations – Dec 24, 2009
It is almost like roles in many companies have flipped. I see CEO’s and division presidents focusing on so much of the day to day management or present day operations and less on strategic vision. Much of this is brought on by the harsh economics and need to show profit at any cost. I see front line employees and middle managers looking for strategic vision and not getting it from their leadership. This is the reason that I feel competitive intelligence is vital to keep companies at the top of their respective games. It must be forward thinking and there must be corresponding strategies to address threats.
1. David Geraghty: Partner at Omega Business Partners – Posted Dec 24, 2009
Excellent question and observations

The new global economy is not very forgiving as well as dangerous to organizations marred in traditional and conventional wisdom.

I hate to use buzz words, "AGILITY" to be intelligent, observant and strategic about decisions to execute the best course of action.

Organizations that improve their ability to allocate resources, effectively utilize resource and manage the rate of consumption will gain a competitive advantage as well as profitability.

We must maximize relationships to borrow brilliance, leverage resources and develop new methodology throughout the internal/external organization, supply chain and customers.

Dave
Tony Johnston
December 28th, 2009 @ 2:40 pm

The following are 11 Comments that were posted on the LinkedIn Turnaround, Restructuring & Distressed Debt Group Discussion page:

1. Gordon Basichis: Co-Founder, Corra Group – Posted Dec 24, 2009

Indeed, I agree. As a former marketing consultant, I was called into companies who implored me to help the change, expand, grow, whatever. "We need to change," I would hear. Okay, so I would devise a plan that was different, expansive, took advantage of the Internet, whatever, and then came the lament, "we have always done it this other way." Bottom line, some companies have enough insight and foresight to recognize the need for change and others fear the change more than their eventual decline or even collapse. Which is remarkable. But true.

2. Mike Ottjepka: Owner, Altic-Mabo,Inc. – Posted Dec 24, 2009

Tony,
This is a lucid analysis.
Unfortunately the stressed are in a state of ‘disbelief ‘ for any number of reasons none of which is rational. They refuse to believe they must begin adapting starting yesterday. The first step to healing is acknowledging the problem. Many times this violates their self-esteem. Humility is difficult.
Keep up the great work.
Kudos, Mike

Tony Johnston: Executive / Business Advisor – Business Development, Operations, Finance & Strategy – Posted Dec 24, 2009

Gordon and Mike,

I thank you for your comments and confirmation of how this leadership problem exists in many different guises. Indeed, I might venture to say it is epidemic in struggling companies. Really, this is where boards should be inserting themselves in the mix, but they too often do not. So these circumstances seem to argue for the need to develop a new theory or approach or mechanism for supervising CEOs and the companies they (supposedly) lead..

Tony Johnston

Steve Kerzman Principal at KzA – Specialists in Business Architecture driven Performance Transformation – Posted Dec 30, 2009

Tony, Gordon, Mike,

I agree with everything said so far and offer up my additional 2-cents worth.

A large % of senior management in larger organisations, board-level or below, got where they got by being members of ‘the team’……which is generally about being loyal to the status quo, not rocking the boat and keeping the money machine (i.e. the company) running more or less as it always has done……with perhaps minor tweaks at the edges. I’m not saying these folks are ‘stupid’ in the normal sense of that word, but most of them in my experience are incredibly poorly equipped (and in the main not inclined) to deal with a step-change in their competitive environments.

Why should they be?! Most of them have not ever done anything like it, and in fact spent a good part of their careers avoiding risky scenarios (i.e. failure when doing something truly new is too often still career-limiting in many environments, and the pole-climbing political types know and avoid this) in the course of their more junior roles. So in light of this is it any wonder that they cling to what they know and ‘hope for the best’…..which among them would actually be willing to put their head above the parapet and make such a call?

My experience is that it is axiomatic that real change only happens in many larger organisations when the pain of the change becomes obviously less than the pain of doing nothing……by which time it is usually much too late for the encumbents to take effective corrective action…..even if they were inclined to do so!

Sad really, but IMHO one of the defining attributes of many modern ‘corporate machines’ is their tendancy to favour the grooming of lemmings for many top roles…..which may just about be OK in a status quo world I guess (thats how it arises I think, and it is possibly a rational outcome in those circumstances), but not so clever when the competitive environment hits the rapids of fast-moving change!

BR, Steve

Michael Wilton-Cox Management Consultant and Interim Manager – Posted Jan 1, 2010

Steve has made a very good point – that change mostly happens when "the pain of change is less than the pain of doing nothing". This usually means that change is well overdue, and the business is being damaged by the lack of action. As a Business Consultant who has specialised in Change Management and Business Turnaround for many years, I come across a lot of companies, large and small, who have failed to recognise the need to change – in the way they do things, or in the structure of the organisation – or have ignored the signs that change is needed. This is where a good board of directors comes in. it is the board’s role, and the role of individual directors, to identify when things need changing, and to initiate that process. Often, organisations do not have the expertise internally to put together a proper change program and see it through. Often, of course, change scares the pants off people – directors as well as others further down the chain – and they put things off or ignore all the signs that indicate they should do things differently until it has damaged the business. I wish things were different, but human nature is not that rational, even at director level. Michael Wilton-Cox.

Mike Ottjepka Owner, Altic-Mabo, Inc. – Posted Jan 1, 2010

It appears we all agree that the problem is emotionally based.

What are your favorite methods to quick change the change resistant ?

How do we make them acutely aware without alienating?

Gordon Basichis Co-Founder, Corra Group – Posted Jan 1, 2010

Mike, I found sometimes if I showed them the upgrades and modifications of their direct competitors it had a way of putting both the fear and reluctant desire for change into their nervous souls. Showing them how their competition was better utilizing the Internet, for example, visual and tangible, was often helpful. It was no longer just a numbers game, but SEO prowess, how high in the rankings the competitor came up on the Google Pages, meta tag optimization, landing pages, actual web design–it all helped.

Showing them demos of related technology that would provide advantages was helpful, although most often the first response is "how much does this cost, again?"

Suggesting new or ancillary target markets sometimes was an eye opener. In some cases they hadn’t considered or calculated an emerging new demographic for their products and services. Advertising or marketing through different media venues was often met with varying responses. And then suggesting strategic partners in areas they hadn’t looked before resonated with some while others thought you were exposing their company to the Taliban.

That being said, there seems to be a cosmic rule there is always one holdout in the group. If it is a private or family business, it’s one of the family members who doesn’t wish to break "tradition," whatever the hell he thinks that is. Some would start to look at you like you were taking them down the road to Purgatory rather than to a place of meaningful change. Then it is time to turn on the charm. Sometimes that magic works, and sometimes you end up having to drag him behind the bus.

Glenn Boresi GM / President / COO – Posted Jan 2, 2010

From personal experience with my small company ($25-30M), fear of change by me, the CEO, was not the problem, but getting the managers to adapt to long overdue change, and a lot of it, being instituted by an employee-turned-owner was the problem. Trying to adapt the culture with too much tolerance only fueled their resistance and in the end cost me dearly.

My hindsight is that the shift in culture should have been communicated and addressed immediately and and those not wanting to adapt should have been let go no matter how important I thought they were. In fact, my company needed fresh blood and talent and I allowed myself to be blinded by misplaced loyalty to the past owner and in-place managers. Never again – - my urgency was dead-on correct but too few key managers signed on. Next time, the urgency will be team-owned one way or another. Downside planning is now a permanent part ot my tool kit.

How have others dealt with this disconnect between shifting the culture and implementing change?

Tony Johnston Executive / Business Advisor – Business Development, Operations, Finance & Strategy – Posted Jan 2, 2010

Glenn,

Thank you for sharing your experiences. I too have faced the type of dysfunctional situation you described.

In my case, the resisters held 75% of the ownership while I as the turnaround CEO and my investment banking group held the rest. Try as we did, we couldn’t get them to embrace required change. They seemed to be more interested in undermining our deal and enjoying entitlement than they were in finding a way to work out from under their previously incurred huge liabilities. As a result, the company became toast and 100 people were out of their jobs within a year of our initially saving them from having to close the plant’s doors for good.

You might find some of the articles on this topic offered by the Turnaround Management Association helpful (refer http://www.turnaround.org/Assistance/IndustryRenewal.aspx ). Here are two excerpts that are relevant to the issue you raised:

+++++

Executives who encounter corporate distress often go through the same emotional stages as dying people: denial, anger, bargaining, depression, and finally acceptance. The last stage is when most corporations hire turnaround professionals, unless they are forced to do so earlier by a lender, equity sponsor, or bankruptcy court.

Corporate managers who recognize and acknowledge the signs of trouble and get help in the earlier stages have a much better chance of a successful recovery for their corporation.

+++++

1. Stages of a Turnaround

Stage One: Changing Management

Management change can begin only when company leaders have decided that changes are necessary. As most CEOs or company presidents do not relinquish power easily, the motivation for management change must often come from the board of directors. Even if incumbent mangers are willing to implement changes in an effort to turn a company around, they often lack the credibility or objectivity to do so because they are viewed as having caused or contributed to the problems in the first place.

During this stage or after Stage Two—situation analysis—steps are taken to weed out or replace any top managers who might impede the turnaround effort. This may include the CEO, CFO, or weak board members.

Stage Two: Analyzing the Situation

Before a turnaround specialist makes any major changes, the individual must determine the chances of the business’s survival, identify appropriate strategies, and develop a preliminary action plan.

(for the more on the 5 Stages of a Turnaround, go to: http://www.turnaround.org/Assistance/IndustryRenewal.aspx )

+++++

So, Glenn, you can see how your thinking is indeed right. Yes, ‘selective executions’ do do wonders for employee moral and turnaround prospects provided they are done for sound, well founded, business reasons that the majority can and will support.

- Tony Johnston

http://blog.CompassNorthInc.com
http://www.CompassNorthInc.com
–> follow me on twitter at http://twitter.com/CompassNorthInc

Charles Steele Manging Partner at Steele Partners – Posted Jan 1, 2010

Tony..moral of the story…dont go in with less than 51% ownership or complete control, trust, and respect of those with 51% or more.

Tony Johnston Executive / Business Advisor – Business Development, Operations, Finance & Strategy – Posted Jan 1, 2010

Charles, … all too true, but you better make sure everything about your deal and its authorities are fully papered before you start or else you won’t be able to separate fact from mirage. We did the best deal we thought we could negotiate. We believed we had our 51+% support all lined up. As we didn’t pay anything to get in or risk anything other than our time, our relationships and our reputations, the risk seemed worth the potential gain. Unfortunately, in the rush to start saving the company, we accepted a irrevocable promise to complete the paper work on our deal terms rather than push to getting it all down, done and signed first. This gave one conniver on the other-side the crack in the door he needed to obfuscate and otherwise undermine our efforts. Did this become the sole reason why the company ultimately went down in flames? No, the rise in the Canadian dollar that killed off cheap-currency product sales to the US did most of the damage that way. What it did do, however, was unsettle and misfocus my and my investment banking group’s turnaround efforts and put our upside return at some risk. But ‘cest le vie’, it is hard to get life to go perfectly ‘nes pas’. Tis it not better to have loved and lost than to never taste such thrill?
Tony Johnston
December 28th, 2009 @ 2:50 pm

The following is 1 Comment that was posted on the LinkedIn Distressed Middle Market Commercial Loans- Professional… Discussion page:

Rob Severson: Author and Speaker at Rob Severson – posted Dec 24, 2009

I think this is true and is also true for individuals. Transferable skills should be looked at often.
Tony Johnston
December 28th, 2009 @ 2:59 pm

The following are 2 Comments that were posted on the LinkedIn Workout/Restructuring Discussion page:

Dan Elder: Business growth strategist & coach, consultant, columnist, author- the Business Growth Accelerators series on Amazon.com – Posted Dec 23, 2009

Tony,

Obviously you’re on target. The current poster child for this is, of course, General Motors. GM prided itself in doing things "the GM way" internally, as the world changed around it. Those internally promoted to head the corporation were consummately skilled in the ways of the company, but were so externally isolated that they were unable to navigate the corporation through the realities of the marketplace; indeed, for several decades they have been incapable of fundamentally altering the course of the corporation to any measurable extent.

Even external attempts to inject new thinking into GM eventually became token efforts given only lip service, from the joint manufacturing venture with Toyota in Freemont California to the establishment of a supposedly independent entirely new brand in Saturn. None of the initiatives had the executive backing to make lasting changes in GM; GM has ended their partnership with Toyota and is preparing to shutter the Saturn brand after failing to sell it to Roger Penske.

The result, as everyone knows, was precipitous decline and eventual, predictable massive outside intervention to save the company.

Finally, even the complete collapse of the corporation hasn’t been enough to get most GM management to change its ways. Repeated news reports have described the widespread arrogance of GM brass still resistant to change, effectively choosing to forfeit their jobs as the new board cleans house, rather than learn new tricks.

Merry Christmas,
Dan

Toby Stoops CFA, CPA: Assistant Vice President – Posted Dec 24, 2009

Tony,

Your illusion of control is accurate. I believe it is especially relevant to family owned or founder control enterprises that have never experienced workout. The time required to convince equity holders of the financial predicament faced by the firm allows the firm to weaken further while causing angst among lenders and equity holders alike.

The fastest approach is generally to get an advisor in place who has experience with the process thus allowing greater comfort among the lenders and less conflict with the equity holders.
Tony Johnston
December 28th, 2009 @ 3:10 pm

The following are 8 Comments that were posted on the LinkedIn Restructuring and Turnaround Management Discussion page:

Robert Lavigne: Manufacturing/ Lean Consultant at Oakley Industries – Posted Dec 23, 2009

I agree that the failure to adapt is why companies fail. That’s very obvious. The reasons can be many. I do believe that management teams including boards tend to react too slowly when they realize thay are in trouble. However, I believe the reason for this is more of a "shellshock" affect as you put it. Management teams tend to grow more complacent or more concerned with other issues when the business is healthy, such as internal politics rather then the business. When they finally realize that they are in trouble, they typically do not have the stomach for the hard decisions since nobody wants to stick their neck out. Its been my experience that managers come in one of two packages. Change agents who love the "action" and managers who love the status quo. Change agents typically are very strong leaders and realize that unpleasant decisions are needed to save the company.Seldom do you find someone who can do both roles. As the company is growing and is healthy, typically "change agents" leave for any number of reasons. So when trouble hits, they’re not there to help.
I do believe that this is avoidable. The company needs to find ways to keep these individuals interested and challenged, or find resources on the outside that can accomplish the task when needed.

Harvey Lansdorf Relationship Manager Special Credits and Restructuring at Rabobank – Posted Dec 29, 2009

It is not the strongest of the species (companies) that survive, nor the most intelligent, but the one most responsive to change.

Pat O’Crowley President and CEO at TrueYou.com ("TUYU") / Cosmedicine Companies / Klinger Advanced Aesthetics – Posted Dec 30, 2009

Yes.

Gregor Cohnen Investment Manager at Nimbus - Posted Dec 30, 2009

From my experience I think the root lies deep in a behavior of management teams. If your business turns sour many tend to go into denial of the situation. I thinlk the most critical thing to avoid this is to develop and train the capability to reflect critically on a situation either through looking at hard and honest numbers or seeking feedback from the outside e.g. from Auditors, Business partners and so on! In Germany we say: The fish stinks from the head!

Tony Johnston Executive / Business Advisor – Business Development, Operations, Finance & Strategy – Posted Jan 1, 2010

Gregor, you speak true and plan when you remind us how rot sets in. Yes, it is a fact that organizations and fish both first begin to smell at the head. And I agree with your view that looking at hard and honest numbers and seeking feedback from the outside are two good means for how to avoid letting management teams (and their board of directors) go into denial when their business turns sour.

The critical question is: how can you force or institutionalize such positive / constructive confrontations so that timely, appropriate corrective action takes place? Should this rely on internal management systems such as strategic business plan variance reporting and third-party competitive intelligence reports to the BofD? Or must we rely on external stakeholders such as secured lenders or large equity capital providers to (a) force reluctant management teams to own up to bad situations and (b) instigate new actions and/or new management to hopefully bring about a more positive outcome?

What do you think is the right and practical way such situations would be handled?

Gregor Cohnen Investment Manager at Nimbus – Posted Jan 1, 2010

Tony, thanks for the reply you pinpoint the tricky part of solving the problem. For me it indeed starts with management systems especially good and thorough planning not in the sense that you have a strategic masterplan on the bookshelf in 55 volumes but to have asked the important questions over and over again and to have probed analytically into critical hypothesis of our business. The next step for me is to set-up a really meaningful controlling / financial analysis framework with a dedicated resource in the company displaying true profitability and cost of operations. Sounds like obvious MBA stuff but interesting enough many companies fail to have one. All this activities should be completed between major equity providers, BofD and the Management team and reviewed very frequently in a montly controlling call, a quarterly business review and so on….
Also not to forget: In some sour businesses it might be appropriate to rely on a forensic review of the business since in a very few cases (luckily) reasons for non-performance have other reasons…

Tony Johnston Executive / Business Advisor – Business Development, Operations, Finance & Strategy- Posted Jan 1, 2010

Gregor, your comments present a sound approach, which I guess is why what you suggested gets typically taught in MBA schools. Too bad in the real world that these good management theories and approaches too often don’t get followed, as you fairly point out.

My wonder is how can we better prevent ‘corporate train wrecks’ and sub-par performances before they happen rather than send in the bankruptcy / insolvency and forensic teams after the fact when little meaningful can get done other than to assign blame and determine write-off amounts. I’ve seen too many CEOs glibly brush aside disappointing results without reasonable or rational explanation even to their own Board and too many major equity providers, BofDs and Management teams all act like happy frogs in boiling water just because they didn’t object each time the water’s temperature went up a degree. These are classic small ‘p’ political thinking and ‘group think’ risk situations. Can they be effectively guarded against?

Is there a good case here for using third-party competitive intelligence and market positioning assessments to challenge top management and the BofD when either the competition’s relative successes or the company’s relative failures become clearly evident?

How can we get BofDs and Management teams to meaningfully address situations where they have not and are not meeting defined performance standards, reasonable expectations or predetermined goals or objectives? Examples might be negative cashflows for more than 2 quarters, declining profitability, aging products, delayed or misdirected programs, declining customer value propositions, etc.

If you think that leveraging third-party unbiased input is not the way to go, what might be better? Or is this just something best characterized as ‘all men (women and BofDs) are entitled to go to hell in their own way’ – no matter who else suffers too, such as staff, lenders, suppliers, smaller shareholders and national economies?

Pat O’Crowley President and CEO at TrueYou.com ("TUYU") / Cosmedicine Companies / Klinger Advanced Aesthetics - Posted Jan 2, 2010

“My wonder is how can we better prevent ‘corporate train wrecks’ and sub-par performances before they happen . . . “

Start by taking away Director and Officer insurance (“D&O”) and holding boards of directors’ personally liable if a company fails to address faltering performance quickly. Recognize many provision within Sarbanes-Oxley while causing some managements and BoDs discomfort, actually protect the investors’ interest.
Tony Johnston
December 28th, 2009 @ 3:22 pm

The following are 4 Comments that were posted on the LinkedIn CXO (CEO, COO, CKO, CFO, CMO, CAO, CVO, CDO, CRO, CLO, CSO & CTO) Community Discussion page:

1. Srinivasan Desikan: Author, Advisor, Architect (@ HP) and Adjunct Professor in Software Testing – Posted Dec 23, 2009

I agree. Failing to adapt is the main reason for company failures. Classic examples are Remington (Typewriter company) and Sun Microsystems (Solaris/Sparc). Executives of companies don’t look longterm as they don’t stay longterm in companies and they focus only on quick results whereas adpting to future takes longterm strategy and vision. Politics within organization amoung people is another big reason for failure of large companies.

2. Gregory Partyka: Former Consulting Insight Program Director at Oracle – Posted Dec 23, 2009

Not necessary do all companies fail because of the inability to adapt. Look at Digital Equipment for example. Their downfall was the inability to market.

The Alpha processor (64-bit) was light years ahead its time. The processor supported the major operating systems (Unix, Windows NT, and Open VMS) at the time. A fact we take for granted today, but back in the mid 1990′s, this was totally unheard of.

Digital, a great engineering company, didn’t know how to market themselves. They didn’t have the Bill Gates. Microsoft executed a marketing plan which made people wait in line at midnight for a copy of Windows 95, when they didn’t own a personal computer!

The lack of a marketing plan for the Alpha, led to the death of Digital Equipment.

In my opinion, any facet of an organization that fails to plan or execute, can lead to its downfall.

3. Duncan Carmichael: Director Technology Sector, Focus Ahead Consulting – Posted Dec 23, 2009

No short snappy one size answer here, but

"The decison not to make a decision is still a decision" can drag a company down.
Sometimes through a false feeling of security,( people protect their jobs first, company wellbeing second) but very often waiting until a direction is forced on the company because the window for the better alternative has closed.

When the choice is made, it is usually the best choice at the time. It is the time that is wrong – it is too late.

When the board or upper management have a decision to make, don’t let the VP of HR make marketing decisions, or have the VP of Sales have an input on which accounting software package to buy.

Duncan

4. Julia Marrocco: Executive Performance Coach, Senior Executive Coach, Professional Speaker, Behavior Analyst, EQ Expert, Addiction Expert – Posted Dec 23, 2009

Sometimes "the bigger they are the harder they fall" can be true. Figuring out how to adapt to change quickly and logistically in a bigger company can be a nightmare, and smaller companies can be more agile. The burn rate is so high sometimes that every day the cost of not making a necessary decision can be mind-boggling. Decision makers and their teams to be very agile these days. Jack be nimble, Jack be quick, if you take too long hurdling over the candlestick you’ll catch your jockstrap on fire. (I just pictured Will Farrell doing that for some reason…)
Change resistance is a great topic these days. Now, more than ever, flexibility and versatility is something to hire to, train to, and coach senior management to stay on their toes. don’t be afraid to move people around to leverage strengths and match them to benchmarks. It’s a new day.
Tony Johnston
December 28th, 2009 @ 3:33 pm

The following are 2 Comments that were posted on the LinkedIn The Economist Newspaper Readers Discussion page:

1. Bhaskar Patel: General Manager at Cybersoft and Manthra - Posted Dec 23, 2009

Sometimes the companies are able to adapt and buy the extra time and sometimes they can’t avoid the inevitable.

Often they don’t detect the ‘threats’ early enough.

Another reason for their lack of action is that they simply don’t know the remedy. Even when they realize that they face troubles, they aren’t sure about the solution and hence they fail to act.

The Ph.D CEO of a health care technology firm may not know how to set up and run a for-profit business but he is smart enough to invite you to join his team!

2. Fahd Khan: Head of Human Resource at Kohinoor Textile Mills Limited – Posted Dec 23, 2009

The actual issue is that the leaders possess the ability to resolve the problems but they do not exercise it and implement the solutions well on time. Although they know there is a clear and present danger. I guess most of the baby boomers have not changed themselves with the passage of time hence what we are today is a result of that laziness…

Regards.
Tony Johnston
December 28th, 2009 @ 3:36 pm

The following is 1 Comment that was posted on the LinkedIn Schulich School of Business Network Discussion page:

Mehul Thanki: Branch Head – Gujarat at Barclays Bank PLC – Posted Dec 23, 2009

Agree with you , but in today’s corporate jingoism every sr.executive thinks of him self as the utmost dynamic manager, so when the trouble is on the horizon you intend to ignore it. It is very easy to consider your self or your system or organization as dynamic but it really requires a culture of all out participation ( /\ \/ = ) and the most negatively tilted team to gun for the best while being prepared for the worst.
Tony Johnston
December 28th, 2009 @ 3:43 pm

The following is 1 Comment that was posted on the LinkedIn The M&A Forum Discussion page:

Mark Borkowski: Owner, Mercantile Mergers & Acquisitions Corp – Posted Dec 23, 2009

Dear Tony:

An excellent analytical look at companies that miss the boat on necessary changes. In these cases, the company requires active change agents like yourself. Well done. A very interesting read and keepsake. Thank-you.

Mark Borkowski, pres.
Mercantile Mergers & Acquisitions Corp.
1 King Street West, Suite 714
Toronto, Ontario
M5H 1A1
(416) 368-8466 ext. 232
Tony Johnston
January 5th, 2010 @ 3:45 pm

The following is 1 Comment that was posted on the Deal Flow Source Group Discussion page:

David Hagebush Director of Marketingstrong> – Posted Jan 1, 2010

Yes, but also the failure to innovate and the failure to stay entrepreneurial. Once companies get immersed in processes and forget about taking chances they are in a slow decline. Yes, someone who is not innovating may have great sales today, but are a great risk as new technologies or other market conditions will erode their position over time. It’s best to keep innovating and have small rather independent teams looking out into the future and assessing potentially disruptive technologies. It is better to replace yourself than to let someone else do the job for you. At least in this manner you control your destiny.

Many large medical diagnostic market companies have not only failed to defend the value of their offerings (seen in reduced reimbursements for tests) but have failed to innovate themselves, in part due to establishing unbending regulatory systems, and relied upon buying smaller companies for innovation.

David
Tony Johnston
February 4th, 2010 @ 1:34 pm

The following is 1 comment that was emailed by a fellow Restructuring and Turnaround Management group member:

I have read your “Failure to Adapt…” article and feel it offers intelligent insights into something I see quite often working in distressed situations.

James Sampson, Chief Executive Officer at Kurz-Kasch, Inc. (http://www.kurz-kasch.com/) – Sent Feb 2, 2010

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Posts by:

Tony Johnston
President
Compass North Inc.

Tony provides executive management and advisory services that help companies get MORE !!

sales / profits / cashflow
financing / exit valuation

Tony delivers the leadership or leadership support needed that can make remarkably outstanding results happen operationally, economically, financially and in the eyes of customers, lenders & transaction counterparties.

If you are a decision maker in a company that wants MORE, give him a call at 416-342-5652 or check out the Compass North Inc website [click here].

Tony's ability to help companies achieve important/challenging goals is well demonstrated by his long record of success, which includes:
- 4 successful turnarounds lead
- $66 mil+ increase public
  company's value
- $34 mil value harvested
  from biotech cofounded & lead
  as CEO
- $12 mil/3x investment gain
  in 2 years delivered for
  VC partners
- $2.5+ bil in public & private
  market debt, equity and
  M&A deals done
- 1 successful company IPO
- 4 new businesses organized &
  grown: Biotech; Securitization /
  Mortgage Servicing; Third-Party
  Logistics (3PL); & Consulting