2008 Woodie Awards
Why Do Corporations Die?
By Rajendra K. Aneja, HBS AMP, Contributing Writer
Issue date: 10/6/08 Section: Viewpoints
Which is the best international company in quality of Management? McDonald's! The traditional winners, Procter & Gamble and General Electric, have been toppled in the latest Fortune ratings.
Bear Stearns, revered as the "Most Admired" securities firm in Fortune's List in 2005-2007, with 13,500 employees, is dissolving into thin air. Fortune's survey is a coveted ranking of talent, quality of management and innovation. In 3-years, Bear Stearns achieved the distinction twice. But, by mid-March2008, Bear Stearn's share price collapsed to a ten-year low (dropping 80% of its stock value), due to faulty judgements on subprime mortgages.
Studies reveal significant mortalities amongst corporations in existence and admirability in the last decade. Companies, which are market leaders, on a sales, profit, admiration hype, suddenly evaporate. Darlings of the stock-exchanges, disappear without a trace. A decade ago, it was unthinkable that monolithic corporations, employing thousands, could just evaporate or loose leadership.
The reasons for corporate mortality are simple. Corporations atrophy, due to lack of a vision, loss of contact with the market/consumers, absence of strategies to negotiate change, obsession with the short-term, sheer laziness and lackluster leadership.
Corporations fade because they are unable to work a vision for themselves. "What is our business? What is our future role? How do we re-define our objectives in view of changing markets, customers and technologies?" These are questions that the CEO and the Board must answer relentlessly. When corporations, merely make products i.e. shoes or soups, but have no societal purpose, they shrivel.
Corporations also dissipate, when they loose contact with customers - their moods, fancies, etc. It is not enough to study mountains of research data. It is necessary to talk to customers. Sam Walton, the man who built the most formidable retail business in the world, spent a lot of his time talking to customers on the floors of his stores. IBM, on the other hand, did not recognise changing trends in the computer markets. For years, they shed sales, profits and employees. Businesses with mingy contacts with consumers will also be characterized by inadequate investment in research and technology.
Bear Stearns, revered as the "Most Admired" securities firm in Fortune's List in 2005-2007, with 13,500 employees, is dissolving into thin air. Fortune's survey is a coveted ranking of talent, quality of management and innovation. In 3-years, Bear Stearns achieved the distinction twice. But, by mid-March2008, Bear Stearn's share price collapsed to a ten-year low (dropping 80% of its stock value), due to faulty judgements on subprime mortgages.
Studies reveal significant mortalities amongst corporations in existence and admirability in the last decade. Companies, which are market leaders, on a sales, profit, admiration hype, suddenly evaporate. Darlings of the stock-exchanges, disappear without a trace. A decade ago, it was unthinkable that monolithic corporations, employing thousands, could just evaporate or loose leadership.
The reasons for corporate mortality are simple. Corporations atrophy, due to lack of a vision, loss of contact with the market/consumers, absence of strategies to negotiate change, obsession with the short-term, sheer laziness and lackluster leadership.
Corporations fade because they are unable to work a vision for themselves. "What is our business? What is our future role? How do we re-define our objectives in view of changing markets, customers and technologies?" These are questions that the CEO and the Board must answer relentlessly. When corporations, merely make products i.e. shoes or soups, but have no societal purpose, they shrivel.
Corporations also dissipate, when they loose contact with customers - their moods, fancies, etc. It is not enough to study mountains of research data. It is necessary to talk to customers. Sam Walton, the man who built the most formidable retail business in the world, spent a lot of his time talking to customers on the floors of his stores. IBM, on the other hand, did not recognise changing trends in the computer markets. For years, they shed sales, profits and employees. Businesses with mingy contacts with consumers will also be characterized by inadequate investment in research and technology.
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Paul Shafer
posted 10/06/08 @ 9:49 PM EST
As a systems and process design engineer who has worked across industries since HBS, I have repeatedly found that companies die due to clinically diagnosable narcissistic executive managers build monuments to their own diseased egos and crush anyone who may oppose them. (Continued…)
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