Ten ways to undermine your company, or even kill it, if you try hard enough

By Zvezdan Horvat, Principal Associate

What do you think – do leaders have more impact on the success orthe failure of their companies? I think they impact failure more. If a company is successful, then this is the result of the good work of many, including the leader. However,if it fails,this is often the result of the hardheadedness, failure to accept others’ opinions, and, in short, poor decision-making of the leader.


The oldest company in the world was, until recently, Kongō Gumi from Osaka, which was founded in 578 AD and did its business constructing Shinto shrines. So it depended on religion, something long-lasting, something people needed. What can we learn from their experience? Many positive things – for instance, the business was always handed down to the most competent son, not necessarily the eldest. Sometimes a son-in-law took over the business; however,he then had to take the family name. In 2007, with the 40thgeneration at the helm, they went bankrupt. How and why did this happen? And why do other companies fail?

I want to share ten reasons, although there can, of course, be more.


Excessive effectiveness:

the definition of effectiveness is doing the right things, whether with products or services, in line with our clients’ or the market’s demands. Sometimes an organization seeks to maximize its effectiveness at any price toexpand to the greatest extent possiblebecause the market is limitless and everything has gone well so far. Often this is done without an understanding of its abilities and that of its managers. As a friend of mine would say – when someone soars into the stratosphere the first thing to suffer is their brain because there is no oxygen. And many have taken out loans, invested in all sorts of things and bought out companies without having the necessary managerial or other knowledge. And all of that in the belief that if a miracle happened once it will happen again and we will make it through somehow. That is how Kongō Gumi overinvested, after more than 1400 years. And now they are gone.


Insufficient effectiveness:

Trends are important, whether you run a coal mine or produce telephones. Of course in the telephone industry trends come and go morequickly. However,they are relevant everywhere. A hundred and fifty years ago Nokia was a sawmill, and they didn’t change, right? Of course,they did. And yet after just a few years of their failure to follow trends, the emergence of smartphonesled to their downfall. It was all due to an inadequate focus on new products. Profits rarely produce the product. Howeverthe product frequently produces the profits, and some forget that. And now they are gone.


Inefficiency in leading the company:

Efficiency is doing it right, i.e.,how we use our resources – human, technological, financial and so on. There is not a single industry where it doesn’t matter if the best people leave. Of course,some industries areheavily affected by changes in commodity prices on the stock market, and for these industries efficiency is crucial. It is like when there are only subcontractors in the chain. The question for such companies is – can they achieve a good cost of production or not; is the product of a high enough quality, and can it be produced on time? I know many who did not want to think about added value and efficiency and they failed to achieve the necessary efficiency and pricing. And now they are gone.


Poor organizational culture:

Have you been in a company which does not think about organizational culture, where there is no mutual trust and respect? And would you work fora company like that? Would you want togo to work every day only with great reluctance, even though the company may be efficient and effective, at least for now? It applies equally to family businesses and multinational corporations. Have you seen how the conflictbetween the owner, the successor and the top management can destroy an organization? I have, unfortunately. And now they are gone.


External loss of control:

If your business is basedon external privileges which give you some form of monopoly, then you can make a nice profit, but your ruin can be just as effortless. In this situation there is no true effectiveness, only an imposed kind, meaning that instead of clients choosing between, say, three cafes, they have to come to you. You have a good relationship with the authorities, so you have a business, butthen the government changes. The law that protected you changes – tomeet EU standards, for instance. I knewof some who did not realize this and did not channel resources into other activities. And now they are gone.


The mental age of those in charge:

If top people in a company expect more in life than they currently have, then they are immature no matter their physical age. These are people who always want more. Sometimes you have the reverse scenario, they are old, they are in a state of inertia, and they are slowing everything down. If they are in charge, their attitudes impact the company. Practically speaking, if they want the company to move forward,they will takedecisions that will make that happen. If they do not want to make sacrifices and get things moving forward,then those are the decisions they will make. I know of companies that, in critical periods, did not have people who wanted to commit to change in the company and to invest themselves. And now they are gone.


Relative market share as perceived by the leadership:

If you are a leader in the marketplace, your need for growth is not so evident anymore. You are top-dog now. It is easier to become a champion than to remain a champion. The desire is not the same. What is the next step? To take a bit of a break, spend some time feeling pleased with ourselves? And then to head back down the slope? How can we turn our desires around? In this situation,the only option is to change your internal definition of the market and to declare yourself the producer of a broader group of products, or to expand your geographic market, or increase the number of client target groups, and thereby decrease your relative market share. Now you are no longer the biggest,and you have the opportunity for new goals and new growth. I knewmany who did not understand this and became complacent and self-satisfied with their greatness. And now they are gone.


Leadership style in the life cycle:

We do not give children and grandmothers the same medicine, and the same is true for organizations. Changing your medicine can be a major mistake. If you have an organization that is too flexible, then the medicine cannot be increased flexibility, it must be increasedcontrol and structuring. If you implement additional quality systems in a budget-oriented organization,you will only increase bureaucracy exponentially. Companies headed for failure cannot be saved by a new system to keep track of when employees arrive and leave from work. Medicine is sometimes administered incorrectly by companies. And now they are gone.


Short-term creation of organizational structures:

What happens when you merge sales and marketing into a single organizational unit, what will they focus on? Sales, of course. What happens when you merge production and product development into a single organizational unit, what will they focus on? Production, of course. What happens when you merge accounting and finance into a single organizational unit, what will they focus on? Accounting, of course. What happens when you merge administration and human resources development into a single organizational unit, what will they focus on? Administration. And what will happen to the development functions? They will be set aside for a future time which will come who knows when, or maybe never. Everyone becomes oriented towards the short-term, just making sure that everybody gets paid next month. And when these people come to a staff meeting, what will they discuss with the general director? Problems with the trucks, of course. I knew the CEO of a company with 5,000 employees who went to the customs office to see what was happening with a truck. And now they are gone.


Lack of integrity:

The usual definition of integrity is doing what’s right even when it’s hard. Do you know the story of VW and their diesel motors? Did the director know? Maybe. The engineers say they had to do what they did because they were afraid of the director. Is it possible that it was the management style of key people even in such a big company, together with the desire for success, profits, bonuses, and dividends, and the willingness to take shortcuts to reach those goals, which led to this scandal? Were they playing a dangerous game, and will it cost them? Definitely. Success will come and go, but if you can teach a single value then let it be integrity, which is lasting. Integrity means always doing what’s right, whether someone is looking or not. For that,you need the couragetodo the right thing, regardless of the consequences. It takes years to build a reputation, but it can be lostin a second. And some have lost it. And now they are gone.


Nikola Pašić, prime minister of the Kingdom of Serbia a hundred years ago, said that the laws arefor our enemies – they are not for us and ours butsomeone else. We might paraphrase this and say that changes are for others and not for us and ours, and that is why they are not easy. Many of those whose stories we’ve told today are gone; however many have heard and understood in time and changed. And they are still here with us.


Zvezdan Horvat, Principal Associate. Zvezdan Horvat has more than twenty years of experience deploying the Adizes Methodology within organizations around the world (USA, Great Britain, China, Russia, Ukraine, Kazakhstan, Belarus, Slovenia, Hungary, El Salvador, Lithuania, Latvia, Moldova, Romania, Turkey, Cyprus and other countries in South East Europe region).


He received the prestigious, “Associate of the Year” Award from the Adizes Institute in 2004 and 2008. His PhD thesis was devoted to development of a model to determine corporate life cycle stage. Read more in Zvezdan’s Bio Here.

This article was presented at Congress of European Manager Associations.