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Will your business still be around in 2020?

Why do apparently good companies fail? While the current global financial crisis (GFC) will be blamed by those who go out of business, in most cases the seeds of failure have already been planted.

The GFC is really an impact on performance rather than on long term business viability. Consider Infosys which has just announced major revenue and profit drops – but even though Infosys is a bellwether for the IT sector, most analysts believe this short term performance decline will have no lasting effect on the business.

But if you think business failure is not possible, consider that this was almost certainly also the belief of those who did. In the 1980s we were impressed by the companies listed in In Search of Excellence, yet by the 1990s many of these were gone. How many companies make the Fortune 500 and vanish within a decade? Average corporate life expectancy in Europe and Japan is a frighteningly short 12.5 years. Are you immune?

The seeds of success can also include the seeds of failure, and danger lurks in the acceptance of bad habits. Spotting bad habits sounds easy but is hard to do — most leaders exist in a kind of cocoon, surrounded by myths and a denial of what is true. Denial among those at the top, and around the top, is endemic. This denial can put the core business at risk, because the leadership group simply cannot see new realities. I’ve listened to leadership groups making claims that “we are different” and they clearly are not. I’ve heard them ridicule their competitors and claim that nothing good can come out of these other companies — wrong on both counts.

To break out of the “cocoon of denial,” you will need to have the ability to get an honest audit of your internal communications, human resources policies, training programmes, and decision-making structures. Denial can creep in to any one of these, and it spreads. The greatest enemy of denial is honesty and scrutiny. Some of the best work on why companies fail has been provided by Dr. Jagdish N. Sheth, who is the Charles H. Kellstadt Professor of Marketing at Emory University. He lists the “7 bad habits” of corporations — turf wars, denial, arrogance, volume obsession, competitor myopia, complacency, and competence dependence.

I’ve already discussed denial and you know how turf wars are destructive, but arrogance? Don’t strong leaders and highly successful organisations need to be arrogant? Many of us use the word arrogant when we really mean confident — yes, it is a great thing to lead with confidence and inspire it in others. But arrogance is a bad habit because it is a king of overblown view of self, an image of superiority that is capable of denying all evidence to the contrary. Many seminars and conferences in India present claims that arrogance is not a problem in South Asian business — but is it starting to take its place at board tables? Has the new confidence tipped over the edge to arrogance?

How does arrogance hurt? The biggest cost that I have observed is that arrogant people and arrogant companies simply stop listening. We know that customers do not necessarily expect perfection, but they do want to be listened too and will go elsewhere when ignored. How does this arise? Arrogance generally arises when a person or some group ‘owns’ their patch, lack any diversity, and squeeze out original thinking. Arrogance feeds on the absence of external perspectives. I’ve seen this level of arrogance prevent an otherwise good organisation adapt to change (the arrogant believe others should adapt to them) and here is where failure begins.

After a decade of success, my business collapsed and there is no doubt that the cocoon of denial and the arrogance of success played key roles. In rebuilding on the last decade, we have been alert for any signal that these enemies are creeping back.

If you are a leader today, a core part of your role is to constantly monitor the health of your organisation, to ensure it does move from survival to long-term success.

The best corporations prevent disasters by having person at board level who acts as the corporate conscience. Lest those of us in business start feeling superior, it has to be said that few chairpersons and few boards have the support of a “conscience keeper” or as I would prefer to put it, a “reputation guard” – a fearless and independent voice that understands that corporations live or die by their reputation. Few senior executives and directors have the ability to compare organisational perceptions with real world views. Their biggest mistake is to believe their own propaganda.

Indian business has been particularly successful in regard to one of Dr. Sheth’s “bad habits” — the one he calls competency dependency, where a successful business becomes overly dependent on one competency. Indian business has diversified, using success in one competency as the groundwork for success in others. This makes them resilient. But all organisations need to be vigilant for myopia, and in particular what Dr. Sheth calls competition myopia, the view that your competitors are one or two other majors in your space. Watch out for those niche invaders!

Territoriality is strong in the animal kingdom, and we in business make a pretty good art form of it as well. Instead of your team aligning to the corporation and its visions, values and goals, the team in fact has an affinity to itself, to its own functional discipline. Consider how often this happens in post-merger environments. Leaders simply have to watch for this, research it, and communicate through it — the barrier of territoriality can be broken down by good internal communication and effective training.

You can see how leaders who want to survive into the 2020’s will need a good mix of honesty and integrity, being able to see things for what they are and to plan ways to improve the success rate of every part of the organisation. That is, good leaders have strong moral values. There is plenty of evidence of a connection between strong moral principles and business success (one of the best books is Moral Intelligence: Enhancing Business Performance and Leadership Success, Wharton School Publishing, by Doug Lennick and Fred Kiel).

Looking back on my business failure in the early 1990s, the strongest lessons I have applied to build success from the ashes have been to be prepared to ask simple questions and demand honest answers, particularly from me. These leadership questions are: What do we want (objectives)? What is the general environment and situation we are now in (situation analysis)? What is the down side (risk evaluation)? Who do we need to talk to target audiences)? What messages do we need to get across to them (key messages)? How should we communicate (strategy)? What actions should we take (implementation)? How much (resources, funds) can we put into business development (budget)? How do we know if we are having an impact (evaluation)?

Right now, as your business thrives and you feel success is here or just around the corner, remembering that success can pave the way to failure will save you a lot of pain.

(Stephen Manallack is leadership and communication consultant, professional speaker, and the author of You Can Communicate (Pearson 2002). He is Secretary of the Australia India Business Council (Vic).

Email: stephen@manallack.com.au Website: www.manallack.com.au)

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