Thoughts on “Why Companies Fail”
The March 2012 issue of the Atlantic had an excellent article by Megan McArcdle called “Why Companies Fail”. The article begins with a discussion of General Motors, who was the recipient of nearly $50bil in government funds during the Recession. However, by November 2011, the Treasury was admitting that nearly half of that investment wasn’t going to be recovered, even after GM’s IPO in 2010. What follows is a discussion on bad habits, but in the corporate side.
Recently, there has been a lot of discussion about corporations, and specifically corporate personhood. If you listened to any of the Occupy Wall Street protests, you often the slogan “Abolish Corporate Personhood” which rails against the creeping ascent that every year seems to give more legal and financial freedoms to organizations. In this context, one often thinks about corporations as giant omnivorous blobs with a continual lust for more profits and control, or as some coldly calculating computer, devoid of a soul or sympathy, methodically stripping the world of all that was good and righteous.
However, after years of working as a consultant, I see neither of those ideas as really being that compelling. Capitalism in itself isn’t bad and, more specifically, large corporations actually have the ability and influence to do amazing work, both by providing incomes to individuals and families and through numerous ways their activities can affect change. What is interesting is that companies are often less like monsters or computers, and more like variations of people. Some soar, making it seem that success is almost inevitable, while others squander every opportunity that is given to them. Some are trying hard but seem to have nothing but bad luck. I’ve met young companies, paranoid companies, fun companies, and other companies that have gone senile.
People and their personalities shape a company, but after a certain amount of time, like a child growing up, a company’s personality (though we refer to it as it’s company culture) often stabilzes. Maybe it is a reflection of it’s founders, maybe it isn’t. However, eventually, the culture of a company is much like any person, with both good and bad habits, many of which it doesn’t notice.
McArdle’s article goes on to talk about the double-edge of a company’s culture, which she defines as “how we’ve always done things”. On the positive side, a stable, identifiable culture provides legitimacy to a company. However, stable culture can quickly become adverse to a change, or worse, actively work to discredit change as foolish, wasteful or unnecessary.
As consultants who work with companies, this can be very frustrating. We’re often like doctors making recommendations to patients to eat a healthy diet, start an exercise regimen and stop smoking, but knowing that they probably won’t listen to us until they are that much more sick, or when the illness requires drastic measures to try and fix. And the older and larger the company, the more frequently they’ll wait to make major changes.
So, why do so many great companies fall apart or implode when they are filled with smart, capable people who are trying to do the right thing? They fail like people fail, because often they can’t change the things hurting them until it’s too late.