Why do big companies fail?

Many people seem to think it is just the ‘little guy’ that suffers and fails because they don’t have money or power. But recent press on big changes in big companies (Qantas, Fairfax and very soon probably Nokia) suggests otherwise.

I am positing three reasons why the bigger retailers (or any business for that matter) might fail.

Astute (and maybe older) readers may recognise that I am borrowing from the Peters & Waterman classic ‘In Search of Excellence’ from the mid-eighties. (It is also referred to as the McKinsey 7S Framework because they were both consultants at that organisation at the time of writing.)

It is logical that the same things that make companies excellent are the ones that – if not done well – predicates failure. In fact, many of the companies that were initially identified as ‘excellent’ fell off a cliff later, but that does not mean that the framework for analysis was invalid.

#1           Shared Values

Alternatively also called ‘culture’ - and I specifically refer to the culture of hubris that exists in many organisations.

Too many senior managers are momentum managers. When things go well, they claim success as theirs and pocket the bonuses. When things go poorly, they point to the environment and the litany of uncontrollable forces that are causing the meltdown. (These ‘forces’ are never there when the times are good.)

This is sheer arrogance. People simply cannot believe that one day things will be different. Not that it may be different; will be different (see #2 below). And they don’t believe that they are to blame – it is someone/something else’s fault.

#2           Strategy 101

ALL businesses (practically speaking) will eventually fail. Today’s darlings (Deals Direct, Kogan etc.) will end up broke or broken up one day – as hard as it is to imagine today.

The BCG Matrix that identifies businesses as either being stars, dogs, question marks or cash cows are even older than the 7S framework. I cannot explain why people don’t practice strategy 101:

When your company/ /division/ product is a cash cow, you should invest that cash in the next generation of stars – and/or resolve the question marks.

What DID Telstra do with that massive Yellow Pages revenue? What DID Fairfax do with that Classifieds ‘rivers of gold’?

Companies should be taking multiple bets on many new innovations (see #3 below) to lay the foundation for future growth; instead they seem to cherish having the cash available to pay bigger bonuses or are taking big ego bets on one glory project. (It works sometimes, but that is luck not wisdom – see #1 above.)

#3           Structure

The structure of any large organisation requires people to work together. Every person’s actions and beliefs and interests will never line up perfectly because people are inherently selfish, therefore all forms of collaboration are somewhat sub-optimal (see #1 above).

There are certain things that only larger organisations/ teams can do, but it does not mean that synergy actually exists. (This requires more space - maybe another post - but synergy is a myth.)

Having said that, scale is necessary and reduced efficiency is the price you pay for it; that is just how it is.

There are three common structural problems I observe regularly:

  • Archaic hierarchical structures (not suited to organisations that are becoming more ‘social’ - not socialised)
  • Departments/ functions that are too big (requiring endless unproductive meetings just to ‘keep people in the loop’)
  • The Peter Principle (promoting people to the point of incompetence)

To summarise: If you have a poorly structured organisation with a culture of arrogance that executes poor strategy, failure is inevitable.

Next step: Find a mirror.

My approach is not scientific, but it is based on a reasonable assumption combined with (unfortunately too many years’) experience in dealing with successes and failures. What do YOU think are the possible causes of failure when you are big and have the money and power to match?


Ganador is a learning and development agency with a track record of using smart ideas, structured execution and cutting-edge learning technology to TRAIN the retail supply chain to deliver the ideal customer brand experience on the consumer frontline. Email Dennis with questions.