Why Do Great Companies Fail?
By Anna Johnson on December 23rd, 2008(And why do fit people die?)
Today I’m going to address that nagging question at the back of our minds whenever we read books like ‘Built To Last’, ‘Good To Great’, ‘In Search of Excellence’ and other biographical business books. The question is: “Why is it that a few years after publication, some (or all) of the companies profiled in such book are not so ‘great’ or ‘excellent’ any more?”
And while we’re on the topic of unfortunate ironies… why do we hear of super-fit people dropping dead of heart attacks? And, no, I’m not being facetious.
As it happens, the answer to both questions is the same. Let me answer the second question first, though, because I think it will help you better grasp the answer to the first question.
And it’s also my chance to write about my beloved grandfather. He WAS one of those super-fit athletes who did, in fact, die after heart attack. He had just finished a training session.
My grandfather was an elite Masters athlete. He broke numerous age-group records in a number of track and field events here in Australia. He was also one of the world’s best. He is still ranked 20th in the world for the 75-79 year old men’s high jump, with a jump of 1.33 meters. He was active and he also ate well and had an extremely positive and enthusiastic outlook on life.
Tragically, though, just a week and a half ago, a blocked artery caused him to have a sudden heart attack. He stopped breathing, which led to brain damage and his ultimate death just over a week later.
When I saw him in hospital just a few days before he passed away, he was in a coma. And yet he looked in such good condition. Not an ounce of fat. Wiry, toned body. Beautiful skin. Not the average 79 year old, that’s for sure.
And yet, in the end, none of that could compensate for a critical weakness – a blockage in his artery – that had quietly gone undetected and untreated. And which led to his death.
Which, unfortunately, goes to show that we can do all kinds of things to become and stay fit, but if we don’t address our ‘weakest link’, all our other efforts will be for naught. That’s NOT to say my grandfather’s pursuit of fitness or health was in vein. Who’s to know what his weakest link would have been had he not otherwise been fit and healthy?
And the reality of mortality is that if we end up dying due to natural causes, it WILL be due to our weakest link at the time. The only thing we can really do to delay this is to identify as many critical weaknesses as we can (e.g. avoid activities and substances known to predispose us to disease or illness) and hope we’ve identified and appropriately addressed the right ones.
So why do great companies fail?
Is it because they suddenly do everything wrong? Well, we’re talking about ‘great’ companies here – companies that presumably do most things right. On the contrary, I think great companies fail because they do ONE CRITICAL THING wrong.
Now, depending on what this critical thing is, the result may be a ‘domino effect’ where, indeed, lots of other things go wrong. OR that one thing may be so critical as to render everything else irrelevant, much like my grandfather’s blocked artery rendered his strength, stamina, positive attitude and other attributes irrelevant.
For example, a great company that makes one critical mis-hire e.g. hiring the wrong CEO, could soon experience a disastrous domino effect where the wrong CEO appoints the wrong C-level executives, who hire the wrong vice presidents, who hire the wrong executives, who make the wrong business decisions, and so on… resulting in a company that fails.
On the other hand, a great company that makes one critical mistake in terms of failing to spot a fundamental shift in consumer demand, may continue to do everything right… except for delivering products its customers want. Think of the companies that sold carriages in the days when the automobile was invented. Or the typewriter makers that refused to change course when the personal computer came along.
According to the Theory of Constraints, which I recently studied in Rich Schefren’s GPS Elite program, there is often one critical constraint that is often the ultimate cause of the main problems plaguing a given business. In fact, what may seem to be multiple causes are often symptoms of that single, deeper cause. That’s why the ultimate cause of a great company failing may, indeed, be doing ONE CRITICAL THING wrong.
The good news is that if we can identify and address that deeper cause then, in so doing, we can also address and wipe out all the resulting symptoms.
At the same time, it’s essential to pinpoint the RIGHT cause. This can involve quite a bit of ‘soul searching’ as we continue to ask ‘why’ in order to uncover the root cause of the problems.
Also, although the idea of finding and obliterating the key constraint holding us back may be appealing… companies – like human bodies – are complex organisms that still require ongoing attention on all fronts.
My grandfather’s weakest link may have been his artery, but even if he’d been able to address that problem in time… he would still have needed to address the next weakest link… and then the next weakest link… and so on. It’s the same for ALL of us.
And it’s the same with companies.
At ANY given time there is a critical weakness that must be addressed to ensure the business continues to grow and thrive. But, whether we’re talking about companies or people, that critical weakness must be addressed first. If that means focusing less on everything else then so be it. Otherwise, sooner or later, that weakness will make the business vulnerable to disaster.
Which, in turn, implies that trying to improve everything at once is probably not possible and not optimal. It’s better to prioritize what needs to be improved in order of how critical it is to your business’s (or your own) survival.
