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WHAT CAUSES A COMPANY CRISIS AND WHAT CAN WE LEARN?

by BIE on 13 Apr 2016

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We've all see businesses go into meltdown. But what causes a crisis and what can we learn from it? Award-winning specialist turnaround CEO Giles Campbell says it's all down to two key ingredients – people and culture.

Speak with the management team of any failing/failed company and one common response usually stands out: "If only we had more money everything would be fine. We could trade through it."

Sometimes it's phrased differently depending on the sector, but the subtext is invariably that some external event beyond the management's control is the underlying cause of the difficulties.

The situation in reality is substantially different.

 A lack of money is usually the outcome of prolonged, sustained mismanagement. It's a symptom rather than a cause.

This tends to be true regardless of the commercial environment – even if there has been a shift in the industry, a disruptive technology event or some other external shock to the business, it is the job of management to deal with these situations.

A good management team will have mitigated the risk through developing the business to a position of strength, through a sound strategy and solid commercial and entrepreneurial thinking.

Of course, this presupposes that the organisation has a CEO who drives that sort of culture, because in my experience the absolute root cause of a turnaround situation is nearly always having hired the wrong people into the executive team.

The hard truth is that people cause turnarounds in 99% of cases.

Usually it starts by hiring the wrong CEO or other top executive. If you've made a poor CEO hire, imagine how poor his or her hiring decisions are going to be. The chances are, they won't rush to hire high-capability individuals and risk exposing their own weaknesses. They tend to hire people who will not challenge or expose their weakness and they use politics to force out of the business those who do. As the late Steve Jobs eloquently put it: "Before long you have a bozo explosion on your hands".

These people can generally be identified through their behaviour towards the business and towards their colleagues. They could be the person who makes a decision that is damaging for the business but improves their own political position, for example. Everyone knows it but nobody will point it out for fear of becoming the next target. And so the company will spiral downwards in a maelstrom of inward-looking personal agendas and office politics.

Until the money runs out.

Along the way, I've identified two key lessons to help businesses getting into a crisis situation in the first place?

1. Hiring

Hiring is the single most important thing that any company will do.

It starts at the top with the CEO. That one hiring decision can make or break the future of the business. He or she will set the tone, culture, behaviour and norms for the business. They will embody the beliefs of what is possible and the acceptability of risk-taking without punishment for failure.

Some of my worst hiring mistakes have resulted from following the widely held myth that 'the person must have done this exact role in this exact industry previously'. Once you free yourself from this dogma, a better logic emerges. Ask yourself 'does the person have the right attitude, aptitude, skills and behaviour for our business and for this role'.

Speak with previous employers. Was the person a hard grafter rather than a skilled political mover? Were they innovative and open minded rather than dogmatic and closed to new ideas? Did they make efforts to support others in the team and put the team first? Can they bring a fresh perspective from a different industry to our management team? If the answers to these are yes, then you're on the right track.

Last on the list will be skills - do they have most of the necessary ones? Are the missing ones relatively easily developed through working with another member of the team who has that strength? In my experience it is substantially easier to supplement a few skills than it is to change a bad attitude or behavioural pattern.

2. Culture

Creative commercial thinking is the engine for business success and the key weapon against getting into a crisis scenario.

Put simply, it is the ability to think laterally about the configuration of the company, the product range, the services and all the ways of using them to make money. This includes new product innovation, new market penetration, right through to totally new lines of business that can extend or build out from the existing business.

Creative commercial thinking requires an openness to trying things and failing, without recrimination. A culture of blame will kill innovation and creativity and it is the responsibility of the CEO to develop a culture of supportive, inclusive behaviour.

It is also the CEO role to create the right conditions for deploying creative commercial thinking amongst the executive team. It is often the case that if the CEO is incapable of leading the team, then the potential of others is crushed under a ton of directionless office politics.

Of course, there are other contributing factors for a business finding itself in a crisis situation. But these two key areas, done properly will help you to identify problems coming down the track and mobilise the entire creativity of the business in the quest for successful solutions.

Giles Campbell is a turnaround CEO who has led the successful turnaround of a wide range of companies, from retail fashion to electronics manufacturing, from £2m turnover to £100m. Awarded European Turnaround of the Year 2013 for recovering a central London Ad Agency, he is a speaker on turnaround leadership and advocate of hands-on company recovery.

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Topics: company turnaround

BIE

Written by BIE