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5 signs of a failing business

Chemical companies, Economic growth, Financial Events
By Paul Hodges on 11-Feb-2010

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.