5 signs of a failing business

Jim Collins.jpgThe Toyota problems, with over 9 million autos being recalled around the world, has set the blog thinking about how to spot corporate disaster in the making.

One excellent source of insight is Prof Jim Collins’ book, ‘How the Mighty Fall’, published last year. This suggests that doomed businesses pass through 5 key stages.

Encouragingly, Toyota’s management are apparently using Collins’ analysis below to help identify the root causes of their problems:

Hubris born of success. This is when people begin to believe their own propaganda, and assume that they will always achieve their goals.
Undisciplined pursuit of growth. Getting bigger becomes confused with being good, and business models get pushed beyond the actual capability of the people involved.
Denial of risks. The top people refuse to accept that things are going fundamentally wrong, and instead re-organise.
Grasping for salvation. Management begins to panic, but still resist making changes to their, by now, clearly flawed business model.
Bankruptcy or downsizing. Nothing can now be done to rescue the situation, and the business is broken up, or closed down.

As Collins notes, decline is a disease that develops in small stages. He says it is “harder to detect but easier to cure in the early stages; easier to detect, but harder to cure in the later stages’. Sadly, Toyota is unlikely to be the only such example that we witness during this current downturn.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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2 Responses to 5 signs of a failing business

  1. Arnie Aistars 11 February, 2010 at 9:43 pm #

    It’s hard to imagine that Toyota would not emerge from this “disaster” a stronger company, rather than continue down the path to bankrupcy or downsizing. Although certainly a setback, Toyota’s recent recalls, even combined, are by no means the largest in automotive history. Many devout Toyota owners will simply bring in their cars for the necessary modifications and continue to be loyal devotees to the brand. I suspect that this crisis will in time be simply relegated to a footnote, rather than regarded as the tipping point for Toyota’s demise.

  2. Paul Hodges 12 February, 2010 at 9:02 am #

    Arnie

    Your point is well made.

    On reflection, the fact that Toyota are indeed using Collins’ analysis as part of their path to recovery is a hopeful sign. I have added a mention of this to the post.

    Thanks

    Paul

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