History is rife with examples of good companies, even great ones, that were excellent right up until they were bad. At least it seems that way. The truth is, they were good right up until the point they slowly began turning away from the principles and practices that made them good. Companies rarely turn from good to bad overnight. It’s a decision here and a tough break there that add up over time. It seems common that when the slide begins it picks up speed until the momentum towards bad becomes hard to stop.
But great companies with great leadership can and do stop that negative momentum. They turn it around and use it to become what they once were or even better.
Good companies can decline for a wide variety of reasons, and the path to failure is often a complex interplay of internal and external factors. Though responsibility most often falls to top leadership it is rarely one person’s fault. Here are some common reasons why otherwise successful or “good” companies lose their way.
• Poor Leadership: Leadership is crucial for the success of any company. Ineffective or unethical leadership can lead to poor decision-making, mismanagement, and a toxic work culture that erodes a company’s foundation. Make no mistake about this fact…company culture begins and ends at the top of an organization. It cannot be delegated to teams or committees. Everything, absolutely everything a top leader says and does has an effect on the culture of an organization. People are always watching and listening. When the words and the actions of leadership are not in sync the people notice. And culture suffers mightily.
Top leaders must also pay close attention to the “sub cultures” within the different departments of their organization. The overall culture within the larger organization may be good but these “sub cultures” can sink an organization too. Culture eats strategy, tactics, and planning for breakfast. If a top leader messes up the culture they have messed up the company. Nothing matters more!
• Market Changes: External factors, such as changes in the competitive landscape, shifts in consumer preferences, or disruptive technologies, can rapidly undermine a company’s position in the market. Failing to adapt to these changes can lead to failure. A common mistake of companies that go from good to bad is an assumption that because they are good they will always be good. It’s an assumption that because they are market leaders they will always be market leaders. You know what they say about assuming and assumptions are a huge factor in companies that lose their way.
• Financial Mismanagement: Poor financial decisions, including excessive debt, overexpansion, or misallocation of resources, can drain a company’s financial health and lead to insolvency. Once again assumptions play a critical role in financial decisions.
• Lack of Strategic Vision: A clear and well-defined strategic vision is essential for long-term success. Without a direction for the future, a company may make ad-hoc decisions that are not aligned with its overall goals. Even big decisions become easy decisions when they are made within the context of an organization’s strategic vision.
• Short-Term Focus: Companies that prioritize short-term profits at the expense of long-term sustainability may make decisions that harm their future prospects. This can include cost-cutting measures that compromise an organization’s talent pool, product quality or investments in research and development. But…profits matter and balancing the need for profits today versus long-term profit down the road is one of top leadership’s biggest challenges. I do not envy them that responsibility.
• Competitive Pressure: Aggressive competition can put pressure on a company’s market share and profit margins. Failing to respond effectively to competition can lead to market share erosion and financial instability. I think this is especially challenging for companies that are market leaders. It’s tempting to say “who cares what the other guys are doing, we’re the market leaders.” While tempting, the fact is that it does matter. It all matters and failing to respond to market conditions has sunk more than one company. If you don’t believe that then think about this one company that we’ll allow to remain nameless…their chief marketing officer once said to me, and I quote, “people will always need film for their cameras.”
• Economic Downturns: Economic recessions and downturns can impact a company’s revenue, access to credit, and consumer spending. Companies without a strong financial cushion or contingency plans may struggle to survive during such times. Economic downturns can be torturous for senior leaders because it may mean letting some of their people go. If you ever find yourself in the role of someone who has been “rightsized” or “downsized” then know that as brutal as it is for you it’s likely been a brutal experience for your senior leaders as well. Put simply, it just sucks, for everybody.
There are a host of other factors that can also come into play. Keeping a business going has always been been a dicey proposition. Lately it’s been a little more dicey than usual. In many cases, it’s not a single factor but a combination of these issues that leads to a company’s decline. Successful companies must remain agile, forward-thinking, and responsive to internal and external changes to mitigate the risk of becoming a “formerly” good company.