WHY COMPANIES STAGNATE AND FAIL

 

There are many causes why Companies either fail or stagnate, but four reasons continue to come up in almost all cases.

1. The Company has no Vision, Strategy or Strategic Business Plan,
2. Weak or ineffective management,
3. Lack of information and control systems,
4. Under capitalization.

The first reason, lack of vision, no clearly delineated strategy and no strategic business plan is one reason seen in almost all-failing companies. Without clear focus on the company's strategy as to how they face the market - "What They Bring To The Party", the company will have lost its way and the members of the company organization will inevitably be working at cross purposes. This acts as a drag on a company's momentum. Lack of focus leads to continual unplanned reaction to situations as they develop. This leads to "Fixes" rather than solutions and, in most cases, costs that were not anticipated. This problem must be solved before any productive work can be done on the other problems.

Weak or ineffective management is seen in many small companies but is most prevalent in family owned and run organizations. In many of the smaller companies, the owner is very competent at whatever the company does - stamping, machining, molding, etc., but neither he nor his employees have had much exposure to managing a modern business. There is significant resistance to change forced by the market conditions. The second generation family members of these companies are usually not as good as the prior generation at the basic function of the company and have received their management training from the prior generation - the worst of both situations.

A lack of information and control systems further aggravates the situation. Typically we find companies that are only reacting to problems and are always behind. Events control them; they do not control events. Managers lack information on the overall situation and tend to concentrate only on what they can see, sometimes to the detriment of the overall company. Lack of control systems allows for significant deviations in buying, inventory, scrap and receivables. Companies of this type do not know their true costs and require substantially more working capital than should be necessary for a company of their size.

Under capitalization is the one problem everyone would probably mention first if asked why companies fail. The truth is that while many companies are undercapitalized, the ones that fail do so because of the three problems discussed above and a failure to manage their growth. Growing too rapidly causes as many if not more failures than those that fail because of insufficient business. Over commitment to new business without the necessary resources will do damage both to the new business but also to a company's current business.

When a company stagnates or begins to fall back, its time to call in help, before your lenders force you to do it. An experienced consultant can analyze a company's situation very quickly and work with the owner or Chief Executive to develop the necessary actions to get back on track and to grow the business. This is money well spent and will result in improved outlook, more productive employees and better relations with lenders, suppliers and customers.

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John W. Davin is President of Ingeniana Management Consultants. His firm specializes in Business Development, Business Plan Development, and Process Re-Engineering. He is an Associate of Aimattech Consulting L.L.C.

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IN-BOARD, OUT-BOARD, SNOW-BOARD, NO BOARD

 

Webster's Dictionary defines "Board" as a group of persons having managerial, supervisory or advisory powers.

Most often, the main reason for establishing a Board of Directors is for the CEO or President to have a "sounding board" to comment objectively on key business issues. Generally, it is the duty of a Board of Directors to monitor corporate and officer activities to assure their propriety and that they are in the best interests of the shareholders. The basic reason should be to discuss and decide corporate business issues and enhance corporate profits and shareholder gain. All US Public companies are required to have a Board of Directors and various stock exchanges and NASD rules impose a limit on the number of "insiders". Private companies are also required to establish a Board of Directors. Insiders is a term used to define employees and certain advisors of the company that serve on the Board. As one might expect, even though the insiders may be very knowledgeable and may add some value to a Board - it will be extremely difficult for them to be objective (when they are reporting to the CEO / President). If they are officers of the company, they already have the ear of the CEO / President and vice versa. A company does itself a real disservice when it loads a Board with "insiders" or becomes an "In-Board" (as used in the title).

Another quagmire to avoid is to recruit friends or family to serve on the Board. Personal relationships can certainly cloud any business advice and strain future relationships, as well. I have seen a company put friends on the Board and they often become "yes men" to issues to avoid conflict and the Board loses it real value.

The other extreme can happen when the CEO / President recruits all outsiders and is not careful to find experienced Board members that understand their corporate duties and are comfortable with the company's culture and business philosophy. CEO's and Presidents need to recruit someone that complements the Director team and offers new skills that others may lack. Without this careful screening of candidates, the CEO/ President can have outsiders ("Out-board") that have their own agenda on how things should run and may introduce conflict into a situation where there should be harmony - yet diverse styles. This scenario impedes progress and breaks down the team into taking sides instead of being decisive.

Occasionally, some celebrities or other high profile "big names" are recruited and will sign up as Board members however they have no real intent or time to serve. You do not need this kind of "Snowboard" member because you are misleading the public, your company and yourself when you announce this person's addition to the Board. The public may not see through this "snow job" display and expect that person to add real value to the Board. Yet there are times when you will want to very selectively recruit high profile Board members, ones that will really participate and bring value in the way of networking, business contacts and hopefully have some meaningful experience in your industry. A company that is planning an IPO will benefit in having several well-known Board members that can and will add value to the company. The ability to raise money and the amount raised can change dramatically if some of these high profile candidates can be obtained as a Board member.

Unfortunately, too many privately held companies do not even establish a Board of Directors and instead set up relationships with a small circle of "friends", their lawyer, CPA or other business contacts ("No Board") - but they are only sought for occasional advice and have difficulty in offering the saged advice and objective challenges to the way business is being conducted. They also have to worry about damaging personal or business relationships. Every company can benefit from a well-selected Board of Directors who can contribute to and review strategic business plans, management succession, financial objectives, and actions. More information on Director Boards can be obtained at www.nacdonline.org, (National Association for Corporate Directors).

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David P. Weaver is the President of Aimattech Consulting LLC.

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Dream Your Way to A Great Year

Consider the power of "January 1st", the first day of a New Year. It causes millions of people to make resolutions, quit smoking, lose weight, improve habits... which they could have done prior!! Self-improvement triggered by a date! Too bad January 1 doesn't start each month's calendar!

In business, January 1 brings a new set of goals and objectives, programs, plans and incentives. SALES AND PROFITS ARE RESET TO ZERO! January 1 is a clean slate, one time each year we focus on improvements, a better year.

If you start the New Year without plans, or if plans are unclear, incomplete or not communicated, you may ad-lib and firefight during the entire year. This leads to chaos, confusion and stress.

Start the New Year Off Right .........with dreams!

What's the proper way to start the year? Concise plans! What's the best way to formulate concise plans? Dreams! that's right dreams!

My friend, Bo Schembechler, successful football coach of the U of M inspired players by asking them to dream. He would say "picture yourself in the final play of the final game against Ohio State. Envision how you will make that tackle or score that touchdown that will enable us to go to the Rose Bowl."

Dreams played a major role in my success at Domino's Pizza. My unbroken string of record operating profits and record market share over 14 years all began with dreams.

With pen and paper in hand, I'd envision raising a glass of champagne on December 31 to toast another highly successful year. I'd ask myself "what will we have to accomplish to make me feel more bubbly about the past year than that champagne in the glass?" Crazy as it may be, I would actually hum the words "when you wish upon a star, your dreams come true" from Walt Disney.

It's true. Many of my far-reaching plans could easily have been neutralized by accommodating to the roadblocks of reality. You must dream separately, ignoring complexities and reasons why your dreams may not be achieved. Often people's plans are lowered to what appears possible, rather than what needs to be accomplished.

Consider such things as sales growth, new products and services, profits and cash flow, morale, expense control...

Reduce dreams eight or ten priorities. I came close to unfulfilled dreams when I thought it would be neat to have 30 dreams to reflect Domino's "30 minute delivery" battle cry during their 30th anniversary. Thirty dreams was too many. Fortunately, I reduced the "Top 30 List" to ten, mid-year, after witnessing confusion.

People who work for you want to help you achieve your dreams to get praise, a raise, a promotion, and a bonus...especially if incentivized in advance, which I strongly recommend.

Tell everyone your dreams! Hold a meeting with EVERYONE to discuss your dreams for '00. Keep the list in your wallet. Review your dreams when chatting with people, and at every meeting. Invest a few dollars to print dreams on posters, or give photocopies to every employee. Ask what they can do to help these dreams come true and what support they need.

Ensure your people know your dreams for '00. Would they score 100% if tested? Ask and review your dreams until your people score 100%!

A client hired me to reduce chaos and underperformance, and increase teamwork and communication. I asked what his dreams were for the year, thinking he might be the root of the problem. To my surprise, this President gave me seven extremely clear, concise dreams for the year. But when I asked his management team, only one person guessed four, the others guessed three or less- including his assistant, CFO and Operations VPs!

Test the power of incentives. Calculate the value of having your dreams come true. Allocate up to 20% of as incentives to the people.

For example, if you wanted to decrease expenses by 2%, which would add $100,000 to your bottom line, allocate 20%, or $20,000 to motivate your people- a party, cash bonuses, tickets to sporting events .... Sit back and watch them achieve it! Inspire them, update them on progress, and enjoy an $80,000+ gain without having to constantly push people.

Review progress quarterly. Set the dates now-have your key people mark it on their calendars. If you are on target, give them compliments or rewards. If you are behind, inspire your team to organize corrective action plans.

Vision, measurables, communication and incentives linked perfectly together will ensure a great '00! Go get that pen and paper, find a quiet place and start dreaming! It's the first step to ensure you will be bubbling when '01 rolls around. Then it'll be time to start dreaming again!

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Don Vlcek (Vole-check), award winning business author, was VP of Domino's Pizza for 15 years and is now an Associate of Aimattech Consulting L.L.C.

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