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Home  » Business » 7 reasons why some firms fail

7 reasons why some firms fail

By Arvind Singhal
September 13, 2007 09:37 IST
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Even if some may still be sceptical about 'India Shining,' there is no doubt that corporate India has been shining for some years now.

Quarter after quarter, and day after day, the business media is replete with stories of stellar financial performance across all sectors, and extraordinary ambition matched with intrepid entrepreneurial activity.

Yet, in the midst of these success stories, there are a few who had every reason to succeed and yet they seem to have already missed the boom or poised to do so. My profession allows me the privilege to work with some of the most successful and then some currently less successful companies -- both Indian and multinational.

Why some of these stars of yesteryear are 'yesterday' today or why the leaders in their home markets outside India are laggards or failures (so far) in India? I can spot seven distinct genres of these underperformers.

1. I would start with the first that I would title as the "civil services" syndrome. This usually afflicts very large multinational corporations with truly global operations. As in the IAS and other leading civil services in India, the managers have slipped into the mode of perennially working towards the next posting and hence following the "process" backed up with aggressive networking and image management is more important than the delivery of results.

Failure to deliver results only leads to a "transfer" to some other country (or to the headquarters) in such corporations rather than facing punishment due to non-performance. Some years later, the same persons resurface after having earned more "seniority".

2. The second genre of under-performers imbibes a culture where managers work for their "boss" and not for their "company". This is seen in both Indian as well as multinational businesses. More energy is spent by managers in managing expectations or the diktat of their bosses rather than putting in time and effort to discharge their defined key-result areas.

The malaise could run through various hierarchical layers, stopping finally at the chairman/CEO, who may have an overarching personal vision of glory rather than the success of their organisation.

3. The third genre of under-performers in present-day India is those who are continuously evaluating opportunities and options. While they can be consultants' dream, they are also the consultants' (and for some managers in such companies) biggest frustration.

As more and more opportunities emerge, such companies always continue to desire to participate in the so-called "flavour" of the day but do not have the entrepreneurial conviction to take a go-decision in a situation where by definition, the newer sectors have significant uncertainties about how they would pan out.

4. The fourth genre comprises companies having a few in-house naysayers whose basic objective is to find reasons as to why new initiatives will fail rather than finding ways to make new initiatives succeed.

Even if rigorous research and sound quantitative and qualitative reasoning make a very strong business case for a company to be the first mover in a new opportunity area, the opportunity is usually scuttled by the argument that "if it is really such a good opportunity, why is no one else or my biggest competitor not into it as yet".

5. The fifth genre is a corollary of the fourth one. In this, companies enter a new business or end up taking exactly the same path as many others are taking just because "everyone is doing it, and hence maybe that is what we should be doing and that is how we should be doing it".

In many situations, such an approach fails or is likely to fail simply because every company has its own unique operating DNA that enables one to succeed, and yet another to fail in the same market and with the same strategy.

6. The sixth genre is a variant of the fifth one, and usually afflicts international companies making an entry into India.

They end up using similar entry strategy, and similar or the same business partners as their predecessors (other international companies originating from their home country), using the logic that these predecessors must have done their homework well and hence they are safe in following their path (even though the distance treaded thus far may metaphorically be just the first hundred yards of a marathon).

7. Companies belonging to the seventh and final genre are those whose leadership is continuously looking to de-risk the risks all new business initiatives necessarily entail. They usually start by market and consumer researching a new idea for months. If the idea survives rigorous research, it is then subjected to countless sessions of scenario building where more time is spent on discovering why the new initiative could fail.

If this hurdle is somehow overcome, the next booby trap is piloting the idea rather than taking the full plunge. By the time the "project" reaches the pilot stage, in most cases the window of opportunity may have already started to shrink or the company's management or financial bandwidth gets stretched with other issues at hand. The pilot then just remains a pilot, and at some stage, the initiative is given a quiet burial.

Are there genres of consistently successful companies and if so, what are their characteristics? Well, this would be the subject of another column in the future!

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Arvind Singhal
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