Tag Archives: business decline

Dreaded Strategic Drift– Road to Doom: Leaders Oblivious to Shifts in Competitiveness, Lost Touch with Reality…

Strategic drift is the often traveled ‘road to doom’– it’s a gradual decay of a firms competitiveness that ultimately results in failure… The term is also used to describe a ‘sense of cognitive sloth’ in the ability of management to meet the objectives of the organization. Common symptoms, include; group-think mind-set, status quo mentality, lack of focus, resistance to change, unable to acknowledge that current strategy is not working… According to Charles Handy; strategic drift is a gradual change that occurs so subtly that it’s not even noticed until it’s too late…

When strategic drift goes unnoticed, ignored it’s devastating for an organization, and the crazy thing is they don’t even realize that it’s happening… All that it takes is– a little compromise here, a little bad decision there… before they know it, an organization is in a situation that it never thought possible– it’s on its way to doom. According to C. S. Lewis; road-to-doom is a gradual one; gentle slope, soft underfoot, no sudden turns, no milestones, no signposts. However, organizations can avoid the dreaded strategic drift– with a little due diligence, i.e.; early warning, agility, resilience, flexibility…

In the article Strategic Drift by Tom Tierney and Jay W. Lorsch write: Strategic drift happens when the strategy of a business is no longer relevant to the external environment facing it… It usually arises from combination of factors, including; business failing to adapt to changing external environment (e.g.; social, technological change…); or, discovery that the competitiveness that worked before doesn’t work anymore; or, complacency, which is often built on previous success that management assume would continue, even when faced with evidence that there are real issues… Consideration for dealing with strategic drift:

  • Incremental Change: Series of small, incremental changes to strategy enable the business to remain in touch with the external environment…
  • Rate of change: External environment is accelerating and small, incremental changes in strategy are not enough to remain in touch. The business is losing its competitive advantage…
  • Management indecision: Significant ‘gap’ emerges between what a market expects and what the organization is actually delivering. Management must recognize when a gap exists, but most often management is unable to agree on the proper strategy forward…
  • Transformation Change or Death: Moment of truth, few options remain– management must then recognize that a simple fix won’t work and a more radical transformation change in needed to save the organization. But for some organizations realization comes too late…

In the article Strategic Drift and Business by Mandy Brooks writes: We live in a business age where change is undeniably a matter of course… It’s all too tempting to do things as they have always been done, but if you simply follow the same rituals out of habit, there is a danger of the dreaded– strategic drift… Some changes in the market place are gradual and aren’t immediately obvious, while others are clear blatant warnings that internal strategy needs to be refocused to accommodate them…

Organizations must face-up to change– an imperative to the future of the organization. Management must recognize a need to constantly re-evaluate strategy, in order to respond to turbulent, unstable market cycles… Management must also ask the difficult questions, e.g.: Is the  current– ‘business as usual rituals’ still relevant, appropriate for today’s changing business environment ? Or, is the organization in danger of slowly but surely on the road to doom?

In the article Strategic Drift Is It Always Bad? by mj writes: Strategic drifts is a result of– weak planning, poor goal setting, ineffective performance… It’s a general mis-fit between an organization’s vision and the strategy that is used to support it… The term strategy drift was first defined by Charles Handy in 1989, and he defined it as a gradual change in strategy, i.e.; a drift that is often very subtly and not noticeable until it’s too late…  Strategic drift is when something in the organization must change, either; vision, or strategy, or both. According to Vincent van Gogh; do not quench your inspiration and your imagination; do not become the slave of your model…

In the article How to Avoid Strategic Drift by Mike Conforme writes: The essence of the strategic planning process can be distilled into three common elements: (1) A thorough understanding of the current position– Where are we now? (2) A clear vision of the desired future– Where do we need to go? (3) A structured plan to get from (1) to (2)– How do we get there? The result of this process is the definition and selection of a perceived relevant and creative strategic plan, which takes the organization in the desired direction while achieving the most appropriate balance of risk and reward…

However despite all the planning, the chosen strategy may not always be the most prudent course of action… Of course, executing the agreed-on strategic plan is very importance, but management must also be cognizant of the constantly shifting environment in which they operate… and to ignore changes, runs risk of serious consequences…

It’s interesting to note that many management thinkers have proposed theories about this strategic change phenomena, e.g.: According to Peter Drucker; existing strategic models are ineffective as change barrels down on organizations making all models redundant within no time… According to Alvin Toffler; changes are akin to the future arriving even before one can prepare for it… According to Gary Hamel; the concept of ‘strategic decay’ explains how the value of each strategy decays over time irrespective of how brilliant the strategy was in the first place…

The key aspect about strategic change is that it’s difficult to predict and control. Hence, the optimal way to deal with it is to expect the unexpected and be ready for anything… Hence, unless organizations embrace change, they are likely to be fossilized… and unless they are prepared to deal with– sudden, unpredictable, discontinuous, radical change, they are likely to go the way of the dinosaurs… The concept of the strategic drift occurs without notice and by the time it’s noticed, it’s too late…

The impact of this all-too-common phenomenon is catastrophic, and it’s important to understand it… An unidentified and/or uncorrected strategic drift is result of being out-of-touch with reality. It’s a strategic gap; and if not corrected it’s a road-to-doom… So the existing strategy for– Where do we need to go? must change… but many a naive leader continues to persists with it– oblivious to shifts in competitiveness…

Art of Managing Business Decline– Coping with the Silent Creep of Doom: Grasping for Silver Bullet…

Managing decline is when a business, organization… has gone irreparably wrong and disintegrating into irrelevance… but being managed, in an organized way, to salvage resources and minimize all possible negative consequences… According to Wikipedia; managed decline refers to the management of decline (or ‘sunset’) of an entity, at the end of its life-cycle, with the goal of minimizing costs or other forms of loss or harm.

According to Maurilio Amorim; right now somewhere in the world there are people managing the inevitable death of a business, organization, product line, entire industry… While some are smart enough to know that the end is inevitable; they are either powerless to change it, or don’t have the will-power it takes to make the shift to something new– knowing the end is near but holding-on because it’s their job…

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According to Bob Angart; the nature of decline and the strategic alternatives for coping with changing conditions are complex; some businesses age gracefully and maintain extremely high profitability, while others decline steadily experiencing rapid market deterioration… Once a business has entered the stages of decline, it’s very hard to change and reverse the process… it takes leadership with vision and motivation to put a business on a new life-cycle and return it to the early days of ‘start up’, when risks are ‘risky’ and unknowns are ‘truly dangerous’ to the business– and it’s at this point that the business begins to ‘evolve’ again, re-imagine itself, and finds new life and new meaning…

In the article Stages of Decline in Business by admin writes: Most business don’t know they have The Decline Disease until it’s too late and when remedies are too painful! According to Jim Collins; some of the best companies that crash and burn go through ‘stages of decline’ with early warning signs, such as:

  • HUBRIS BORN OF SUCCESS: We’re so great, we can do anything! Great enterprises can become insulated by success; accumulated momentum can carry an enterprise forward for a while, even if its leaders make poor decisions or lose discipline… But it’s when the rhetoric of success succumbs to hubris and attribute success to your own superior qualities (e.g.; We deserve success because we’re so good/so smart/ so innovative/so amazing)… Then, you might find yourself surprised, unprepared when you discover your vulnerabilities too late, then decline surely follows…
  • UNDISCIPLINED PURSUIT OF MORE: More scale, more growth, more acclaim, more of whatever… that those in power see as ‘success’… when companies stray from the disciplined creativity that led to greatness in first place, and making undisciplined leaps into areas where they are not great ,or growing faster than they can achieve with excellence– or both… When an organization grows beyond its ability to fill its key seats with the right people, it has set itself up for a fall. Although complacency and resistance to change remain dangers to any successful enterprise, overreaching better captures how the mighty fall…
  • DENIAL OF RISK AND PERIL: When internal warning signs begin to mount, and yet external results remain strong enough to ‘explain away’ disturbing data, or suggest that difficulties are ‘temporary’ or ‘cyclic’ or ‘not bad’, and ‘nothing is fundamentally wrong’… It’s when leaders discount negative data, amplify positive data, and put a positive spin on ambiguous data. Those in power start to blame external factors for setbacks rather than accept responsibility. The vigorous, fact-based dialogue that characterizes high-performance teams dwindles or disappears altogether. When those in power begin to imperil the enterprise by taking outsize risks and acting in a way that denies the consequences of those risks, they are headed straight for decline…
  • GRASPING FOR SALVATION: When the cumulative peril and/or risks gone bad assert themselves, throwing the enterprise into a sharp decline… The critical question is: How does its leadership respond? By lurching for a quick salvation or by getting back to the disciplines that brought about greatness in the first place? When you find yourself in trouble, when you find yourself on the cusp of falling, your survival instinct and your fear can prompt lurching– reactive behavior absolutely contrary to survival. The very moment when you need to take calm, deliberate action, you run the risk of doing the exact opposite and bringing about the very outcomes you most fear. By grasping about in fearful, frantic reaction… companies accelerate their own demise…
  • CAPITULATION TO IRRELEVANCE OR DEATH: The point of the struggle is not just to survive, but to build an enterprise that makes such a distinctive impact on the world it touches (and does so with such superior performance) that it would leave a gaping hole– a hole that could not be easily filled by any other institution– if it ceased to exist. To accomplish this requires leaders who retain faith that they can find a way to prevail in pursuit of a cause larger than mere survival (larger than themselves) while also maintaining the stoic-will needed to take whatever actions must be taken, however excruciating, for the sake of that cause…

In the article End-Game Strategies for Declining Industries Kathryn Rudie Harrigan Michael E. Porter write: In choosing a strategy when in decline, managers need to match the remaining opportunities in the industry with their companies’ positions. The strengths and weaknesses that helped and hindered a company during the industry’s development are not necessarily those that will count during the end-game, where success will depend on the requirements to serve the pockets of demand that persist, and the competition for this demand…

To determine the correct strategy a company should assess its strategic needs vis-à-vis the business and modify its end-game strategy accordingly– companies must choose an end-game strategy for themselves, rather than let one be chosen for them… Clearly the best course is to manage the decline so that the business can improve its end-game position…

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In the article Business Turnaround Strategy by Gary Rushin writes: In a situation where the business is in crisis and you are trying to identify and manage the decline– the nagging questions are: Is the business really faltering out of control, heading towards doom? What strategy do I employ to turnaround the business? How do I identify the real problems the business is facing? What actual resources do I have to employ to reverse the decline? Determining what constitutes a managed turnaround and restructuring in a declining business is not easy.

Too often business management is focused on symptoms of the business decline rather than determining the causes of the business decline… Some of the common symptoms of business decline can be noticed by– rapid turnover of senior management and employees, factoring customer invoices, declining customer services, increased disputes with leading suppliers, stretching of supplier payables, build-up of inventory, low employee morale pervasive through the company… Both internal and external issues can cause serious business deterioration, for example:

Internal causes; high costs, lack of an effective marketing, lack of innovation, weak financial policies, organizational confusion… External causes; changes in market demand, competition, disruptive technology… Widely known and most often the causes of business decline can be attributed to: (a) flawed or outdated strategy, (b) good strategy, but poorly implemented, (c) poor strategy, and poorly implemented… Not all distressed businesses can be rescued… whereas for others, remedies may involve just applying basic  traditional management techniques mainly by following best practices…

Understanding the signs of crisis and decline in organizations can help management understand the environmental context of a situation, in the critical early stages of setting expectations and roles… before it’s ‘too late’. According to Joe Lamantia; business crisis can present great opportunities with significant benefits, as well as, mitigating many dire consequences, when well-managed… however, in other situations business decline is better managed for quick closure rather than delay of the inevitable– wasting much time and resources– there are too may holes to patch.

To avoid difficult crisis business must engage in regular health checks– examining, re-examining all the critical elements that can impact health and well-being of the business, both internal and external…

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Business that regularly check and assess their business process,  competitive intelligence, market innovations…  are in a position to spot potential problems early on and take steps to avoid crisis…

Several common issues that cause business decline are:

Entanglement; companies that tackle basically different business activities with the same strategy…

Out-of-focus;  companies that fails to focus on value creation…

Un-adapted; companies that do not adapt to changing market conditions…

Over-stretched; companies that grow faster than its structurally capable of handling… Those in charge of a business must take a good hard look at themselves to determine how their decisions and attitudes contributed to the decline…

They must ask: Why are we in business? What do we hope to achieve with the business? Once the answers are known; the business must take appropriate action to re-imagine itself, quickly, and move forward…

 

Corporate Death Spiral– Going to Hell in Hand-Basket: Avoid Downward Spiral– Stop The Bleeding, Do Things Differently…

Corporate death spiral, going to hell in a handbasket… describes a situation when a business is headed for disaster inescapably or precipitately… Many business’s today are struggling: The business model that worked 20 years ago, or 10 years ago, or even a few years ago no longer apply to today’s competitive global market…

According to Gregg Stocker; nowhere is it written that a company, regardless of how large or how successful it might seem to be, will survive… The media continue to report about large, well-known companies that at one time are extremely successful, then fall apart seemingly overnight. In reality, the decline of an organization is a process that usually takes several years and results from a number of– actions, decisions, behaviors… that contribute to the demise.

The highly complex nature of organizations and markets makes it difficult to determine what actions or events led to the problems being faced today… The decline can actually begin when times are good and continue for many years, before it becomes obvious that the organization is in deep trouble…

spiral gallup-business-deaths-graph Unfortunately when the decline becomes apparent, the leaders often shift into crisis mode and implement drastic actions to improve the situation, which although are well-intentioned, they actually result in speeding-up rate of decline… Entering the corporate death spiral is a process that begins with weakening of an organization’s immune system. When one or more of the signs are evident, it’s vital to fix the problems by understanding and attacking ‘causes’ of the warning signs instead of treating only ‘symptoms’ with short-term actions…

According to David Gardner; leaders either have to figure out how lead their companies in a constantly evolving market, or run the risk of becoming a victim of the inevitable– change in market or transition of market… Companies in a death spiral watch market change or transition before their very eyes, and then later wonder how they could have missed it…

Economic Death Spiral: More U.S. Businesses Dying Than Starting by Wynton Hall writes: In a report, Gallup CEO and Chairman Jim Clifton revealed that– for the first time in 35 years, U.S. business deaths now outnumber business births… Clifton says for the past six years since 2008, business startups have fallen below the business failure rate, spurring what he calls– an underground earthquake– that only stands to worsen…

According to Clifton; let’s get one thing clear; the economy is never truly coming back unless the    birth and death trends of businesses is reversed… Indeed, the numbers are striking: Contrary to the oft-cited 26 million businesses in U.S. figure, Clifton says 20 million of these so-called ‘businesses’ are merely companies on paper with– zero workers, profits, customers, sales…

In reality, U.S. has just 6 million businesses with one or more employers– 3.8 million of which have four or fewer employees. In total, these 6 million U.S. companies provide jobs for more than 100 million people in U.S… Of the 2.2 million job-creating companies with five or more workers, the numbers break down accordingly: There are about one million companies with five to nine employees, 600,000 businesses with 10 to 19 employees, and 500,000 companies with 20 to 99 employees. There are 90,000 businesses with 100 to 499 employees. And there are just 18,000 with 500 employees or more, which includes about a thousand companies with 10,000 employees or more…

According to Jim Clifton; these numbers paint an ominous portrait of business in dire state of decline, and I don’t want to sound like doomsayers, but when small and medium-sized businesses are dying faster than being born, so is free enterprise, and when free enterprise dies nations die with it…

spiral thKKFY93PV In the article Avoid the Downward Spiral by Dennis Gerschick writes: Success often leads to complacency and complacency leads to poor results and the downward spiral… Many companies who were very successful at one point ended up going out of business, e.g.;  Who were the top two retailers in the U. S. in 1975? Sears and K-Mart: What happened to them? Both are on a downward spiral…

There are a lot of adages that may seem like pithy statements but they usually contain much wisdom, e.g.; one adage that has done more damage to more businesses than any other is: If it ain’t broke, don’t fix it. At successful companies they modified it to read: If it ain’t broke break it, because if you don’t, your competitors willThe adage; If it ain’t broke, don’t fix it– really suggests the company is good enough just the way it is, and there is no need to improve it. This attitude sets the stage for complacency and the downward spiral… The world is constantly changing and businesses have to change to be able to compete in the new world.

Executives must stay informed of changes in technology, demographics, political and social trends, economic conditions, what competitors are doing… but  many executives, don’t so for a variety of reasons which may include, e.g.; executives being  myopic – they focus on what they are doing but fail to see forest for the trees… They do not see the changes or trends, and many might think that  the changes or trends are only temporary, and conditions will revert back to what they always knew… Change scares many executives because they cannot predict the future. Many executives find comfort in maintaining the status quo… Many executives simply want to stay on the same path until they retire; the business is secondary and they think only in their own best interest…

In the article Is Your Business Bleeding Out? by Ben Lichtenwalner writes: Bleeding-out (i.e., exsanguinations in medical terms) is death caused by loss of blood from a wound. In business, the term could be used to describe a similar death. Wounded by an event(s), the organization can fail to recover, slowly bleeds to death… Whatever the injury source, the bleeding must be stopped for the business to survive… It’s important that leadership– recognize the impact, identify the source of the bleeding, and put a stop to it…

There are several types of blood the business may lose, e.g.: People; your best people, seeing the trouble, they seek employment elsewhere… Efficiency; resources are wasted on politics, personal agendas and ulterior motives… Commitment; disengaged workers who remain, show a lack of enthusiasm and performance decreases… Whatever the type of blood loss you experience, it’s highly likely you will eventually see decreased levels of all three. The downward spiral often begins with one attribute and takes-on other vital components as negative momentum builds. Faced with a wounded organization about to bleed-out consider how hospitals usually treat patient that are in this condition:

Emergency Procedures for an Organization Bleeding-Out: When a patient is admitted to hospital, the medical staff processes the patient through four phases: Triage, Diagnosis, Treatment, Recovery:

  • Triage: Stop the hemorrhage: At this point, fast, strong and highly visible action is required. Communications to the organization about your commitment to resolving the issue is necessary– you may not be 100% certain of the root cause…
  • Diagnose: Triage executed, now you must begin to diagnose root cause. This means a cross-functional, multi-level team dedicated to naming the source…
  • Treatment: Treatment process is often uncomfortable for many– like re-breaking a misaligned limb… but, commitment to completing the healing process is vital. Or, if not careful, you can slip back to old routines and bleeding resumes– often at faster pace…
  • Recovery: Organization must experience a time of healing, and hypersensitive to the problems of the past… leadership must be constantly engaged with employees and reinforcing ongoing support and commitment for the long-term…

Don’t just sit there; Yes, whatever you do, don’t just sit there. Allowing the organization to bleed-out is like a medic standing beside a dying patient, watching them slowly fade away. In long-term, you would be equally responsible for the slow death of the company. Stand up; Say something; Take action… According to  Aswath Damodaran; the Chinese saying;  = you are born, get old, get sick and die… Looking back at history, there are companies that have beaten the odds of the business life cycle, fought off decline, and reborn as successful ventures, for example; Apple’s climb back from the dark days of 1997 to the top of the market capitalization… As you think of other examples it’s worth noting that the very fact that you can name companies that are reborn suggests that businesses can survive the death spiral and thrive…

spiral ciavniuad06fxohwao4d3a Notwithstanding the sobering reality, it’s still useful to put success stories under the microscope, not only to get an understanding of what allowed these companies to succeed, but also to develop forward-looking criteria that you may be able to use to sustain a business, for example; ‘Acceptance’: The old ways don’t work any more…

To have a corporate rebirth, a company has to get through the acceptance that old ways, don’t work any more… ‘Change Agent’: This may be cliché but change has to start at top… ‘Plan for Change’: Knowing that the existing ways don’t work any more is important but it’s futile unless accompanied by new mission and focus… ‘Luck’: Much as you would like to attribute success to great skill and failure to poor management, it remains true that the X-factor in business success is luck (although people create their own luck).

According to Joann Auger; the downward spiral is that tendency to get caught up in ‘what’s wrong’ and ‘why it’s wrong’ conversations thus spiraling into negativity… Often leaders wait too long to address problems, or are only made aware of problems when it has reached near crisis… and this can be the beginning of a downward spiral…