Joined: 14/Jan/2008
Location: India
Online Status: Offline
Posts: 364
Posted: 22/Feb/2008 at 9:53am
Originally posted by avinashpai
To answer your question - My observation has been that companies fail typically because they cannot see change. When the see it they try to bury their head in the sand and pretend it will go. Adaptability is the key for a company to survive. The Premier example cited above is a an example. Bombay Dyeing is actually another example though today they survive on the 'Real Estate' story. Think of Onida, BPL and they were industry leaders a few years ado and then came the Koreans. These guys didn't adapt - be it competition, changing technology, legislation etc.
Hi Avinash, Yes your observations are right abt the management. Co. who do not innovate, or cannot c change, are the first ones to fall-fail. V good comment.
I feel Being proactive rather than reactive is the key to success.
Also attittude of top managment is of utmost importance. There shud be fire in the belly to succeed.
Best wishes,
Edited by Janak.merchant1 - 22/Feb/2008 at 9:55am
I love my money, not my opinion. So i am ready and willing to change my opinion for the sake of protecting my money.
Joined: 29/Mar/2007
Location: India
Online Status: Offline
Posts: 4243
Posted: 22/Feb/2008 at 11:34am
A large number of VC funded chota mota companies fail because -
- The management doesn't know what to do with all that money! They end up decorating the interiors, pay fat bonuses too employees and party hard every weekend.
- The business model itself is so adventurous that the every individual on earth has to be their customer inorder for the company to breakeven.
- Even if the business model is good, sometimes the execution of business plan will be poor. Again, the aspect of 'somebody else's money' is generally the cause for this.
- Some of the VCs themselves are not very bright. Just because YouTube.com is successful, they will pour money into similar ventures or those with a slight twist to a successful venture.
Joined: 19/Feb/2008
Location: India
Online Status: Offline
Posts: 90
Posted: 23/Feb/2008 at 12:11pm
I agree. And these days that problem is going to be compounded. I read about 'Successful Managers' quitting to form pursue entrepreneurial activities by managing funds for foreign PE/VC investors. Practically anybody who is a somebody is into 'managing' funds for overseas investors. I read today about somebody from IPL management firm quitting to manage funds. In these times of abundant capital it is easy. The moment there is tightening of liquidity lets see how these 'successful managers' manage money!
Beware the Black Swan. It may be lurking down the corner. Technical Analysis may help you find it in a hurry!
Joined: 14/Jan/2008
Location: India
Online Status: Offline
Posts: 364
Posted: 26/Feb/2008 at 10:28pm
Companies can fail due to many reasons. Taking on too much debt without ensuring attention on cash flow, Environmental reasons, Change in consumer tastes, Drastic slowdown in economy/customers' spending due to macroeconomic factors,unpreparedness for change in Government policy, Technological changes that make the current product obsolete, New products from competition, Alliances between competitors in the industry that leave the company weakened, Irrational pricing behavior in the industry,Complacency due to success, Lack of Innovation, Not having a clear goal or strategy, overexpanding,dishonest management, outdated technology,they fail to adapt to changes in the market they serve.… the list is endless.
I love my money, not my opinion. So i am ready and willing to change my opinion for the sake of protecting my money.
Joined: 14/Jan/2008
Location: India
Online Status: Offline
Posts: 208
Posted: 26/Feb/2008 at 11:26pm
I would like to take a few analogies from Darwin’s theory:
(a) All species (read organizations) compete to survive. The first born always has an advantage.
(b) When the environment favors a particular species, it thrives at the cost of others. There is always a new species waiting for its opportunity to thrive. And yet too many competing species in the same soil make all of them stunted.
(c) Any change in environment could spell sunset for one and sunrise for another.
(d) Any species that shows flexibility to adapt will out last others e.g. look at 3M – it started as a mill and has blossomed into thousands of ideas and products like post it stickers. A good example from the animal species is the cockroach, which can survive on plastics or garbage in difficult times and even survive nuclear radiation! Then again if you look at GE, it is the only surviving company on the DJIA since DJIA started (over 150 years? How many survivors do we have on the Sensex from Day1?
(e) The largest animal is not necessarily the fittest species– look at dinosaurs and our own dinosaur organizations. Some dinosaur species had two brains – one in the head and one in the tail. And yet their co-ordination was so poor. A large tree, when it looses a limb does not feel the pain, is so unaware of its loss till it is too late. By that token a smaller animal will feel the loss even of one toenail and for that reason react and survive.
Popular business literature is full of stories of great companies and their invincibility. But with corporate lifecycles coming down at an alarming pace, that doesn't seem true anymore. Marketing guru Jagdish N Sheth explains.
Well known academic Jagdish Sheth is closely watching a clutch of hugely successful companies such as Google and Cisco. He is convinced that on their way to success, these companies have unintentionally acquired certain bad habits which might lead to their downfall. Says Sheth, "With success, Google will become arrogant and complacent. Google is today's avatar of Microsoft, which is yesterday's avatar of IBM." Sheth is convinced that Infosys is treading on the same path. And Cisco? "Cisco is succeeding so very well right now that is underestimating Chinese competition from Huawei. It is in denial mode. Cisco feels that it has succeeded against IBM and that makes it almost invincible," he says.
All of us have grown up with the notion that good companies are invincible. The idea, perpetuated in large measure by business gurus Jim Collins and Tom Peters in bestsellers like In Search of Excellence and Built to Last , was good while it lasted. But if you look at the evidence, it suggests the opposite. "The life expectancy of corporations," says Sheth, "has been declining since the 1970s. Today the average age for big companies is less than 10.5 years."
That is a shocking statistic considering that Sheth's research covered only the crème de la crème of the corporate world - companies that were part of the Fortune 500, S&P 500 and the FTSE.
"These are well-screened companies - financially better off, transparent...In other words, they are sort of showcases of the nation from an investment viewpoint." And these very companies have shorter lifecycles today. What exactly is going on?
Intrigued, Sheth started scouting for the answers. The result is a book titled The Self-Destructive Habits of Good Companies. "I used to think that competition destroys good companies. Strangely, I found that's not true: companies destroy themselves," says Sheth. "On the way to becoming successful or achieving survival or greatness, companies begin to acquire bad habits." None of these habits, he says, are acquired intentionally but it happens as a side effect of growth.
But what are these habits like?
Arrogance from Accidental Success ... the vast majority of companies succeed by accident - being at the right time at the right place. And then they begin to take more credit for themselves and that leads to arrogance," says Sheth.
At General Motors, Alfred Sloan created a culture of arrogance. Today, both Wal-Mart and Microsoft have gone down the same route. Once arrogance sets in the company, it becomes abusive on customers, suppliers, employees and the community at large. In Wal-Mart's case, it was unthinkable for a small company like that to succeed where there were giants such as Sears and K-Mart. "They began by nurturing everyone properly - for instance, by offering end consumers better brands at lower price - but later they became abusive with success," says Sheth.
The No-One-Can-Beat Me Syndrome Success breeds complacency. Remember Air India of the 1970s? On any measure you can possibly imagine - be it capacity, financial performance or customer service - it was easily one of the best in the world. Once it was nationalised, it became complacent and started to collapse. "Complacency usually comes when you are a monopoly - because you have no competition. It comes in public enterprises too," says Sheth, adding that it also happens when you have monopoly over distribution. De Beers, for instance, is a classic example. "They started dictating terms to mining people (their suppliers) and also diamond cutters and began to say we control everything."
Growth Pangs When you become a successful company, you become large and need to organise stuff. So you put in place processes and people. "It's essentially how you create a culture of failure essentially over the long term by being a culture of success. These are habits you acquire as a side effect of being successful," says Sheth. So, internal turf wars begin. Three dimensional turf wars are very common. So there are functional turf wars where engineering doesn't work well with sales and marketing, who, in turn, don't work well with functional support people. Then there are turf wars between geography heads, or country managers versus functional heads, or country managers against product managers.
Take WPP which grew through acquisitions. "All the ad agencies or public relations agencies they bought were founder-driven. They have never worked together. It's like herding cats. So, as a group Sir Martin Sorrell has to manage all of them, they don't fight," says Sheth. But wars are going on and Saatchi & Saatchi has collapsed in the process. "In the case of WPP when the founder's culture is subsumed within the larger corporate culture turf wars begin," he says. Or take Motorola which is largely engineering driven; fights happen between engineering and sales and marketing. "They had a tough time making the transition from being a technology-driven to marketing driven company," he adds.
When Competency Becomes Liability Remember Techtronics? Perhaps no! The reason being, Techtronics clung to its competency even after it became irrelevant. "Greater the competency you have that no one can duplicate, greater that competency becomes a trap for you. When you are very good at whatever you did, you are not able to do anything else very well," says Sheth. Techtronics engineers believed that analogue was superior and digital technology would never make it. They simply refused to make the transition to digital and were soon overtaken by Hewlett-Packard. Kodak made the same blunders by not moving from film to digital technology on time.
How Big is Your Viewfinder? And this is something that Sheth calls competitive myopia. "The notion is that as more and more companies succeed, they begin to narrow down their peripheral vision of who their competition is," he says. It's a bit like being in a marathon race. At the beginning of the race when there are 10,000 people running, you are watching everyone. But as you outdistance them with success, where there are just 3-4 guys in front of you and next to you, somebody from the back comes and overtakes.
It's the same with companies which tend to locate in the same place physically. "So all the Detroit car makers only watch each other. They have the same engineers go from one company to another. So they don't recognise that there could be a fundamental shift in automobile technology from outside," says Sheth. The same thing holds for financial institutions in London and New York. And Silicon Valley "just thinks of itself". "In chip making, especially memory chips, they never thought that the Koreans could be the leader. Samsung is the leader," he says. "I have the same worry about Bangalore as the IT capital."
No. That Cannot Hurt Me Denial is the most dangerous habit. Today, Japanese companies are giving US automakers a run for their money. Interestingly, it was the American auto guys themselves who opened the doors for the Japanese. "General Motors never believed that small cars will sell well. Their numbers showed that there just wasn't a big enough market," says Sheth. So what they did next was outright silly. They began to allow three automobile dealerships they controlled to carry Honda, Nissan and Toyota. That allowed the Japanese to come into the mainstream market. And the irony was that a Pontiac dealer would sell Honda like hot cakes whereas a heavily discounted Pontiac would not sell at all. So the dealer's loyalty would automatically shift to Honda.
It's Not About Volumes, Silly! "For the sake of growth, companies often start collapsing margins. They become volumes-driven in their approach, thinking that they will make it big in the long run," says Sheth. That happened with IBM, for instance, in the PC business. "In the PC business the value-add in the factories is only 11% - labour, capital and management - 89% is all procurement. Out of this, 79% goes to Intel and Microsoft and they are laughing all the way to the bank while IBM was not making any money," says Sheth. "Volume obsession will kill you. You have to learn how to protect your margins." Right now, telecom companies across the world are facing this problem. "Out of the 60 million customers AT&T has, it will never ever make money on 20 million. But the cost of servicing a customer is $6 a month. So it will lose money on customers who will never make any phone calls. It is strictly dead on its database," says Sheth. So basically, the company needs to find a way of raising minimum requirements or say goodbye to these non-profitable customers.
So what about companies as have steered clear of these problems? "They created a founder's culture that is inconspicuous. There is no media hype," says Sheth. Take 3M. "When it was heavily traced In Search of Excellence, it told everyone, this is just a hype, don't believe it, we are not that good. Instead, it created a counter culture to examine its own problems - just because everyone was talking of its own strengths." Similarly, there are some family-run businesses such as SC Johnson in the US. "A fifth-generation company, they have nurtured the next generation to be humble," says Sheth.
(Jagdish 'Jag' Sheth is the Charles H. Kellstadt Professor of Marketing at Emory University's Goizueta School of Business. An acclaimed expert in Marketing, Sheth is the author and co-author of books like The Rule of Three and Tectonic Shift.)
Intriguing observations. Comments/views anyone?
Life can only be understood backwards—but it must be lived forwards
Joined: 29/Dec/2007
Location: India
Online Status: Offline
Posts: 1283
Posted: 11/Mar/2008 at 9:46am
Makes sense .....however I would like to see what the author's view are on some of very successfull Japaneses businesses are , Sony was one case where its arrogance caused it fall ..however I think Toyota has been doing an excellent job for many years...now that they are at the top the challenge lies in what they do to remain there.
The other important point is learning from others mistake(you need no commit a mistake to learn from it ) ..now take the example of the korean chaebols....lot was written that daewoo,samsung and LG would storm the world..but only samsung has made a mark so far ....LG and Daewoo could have learnt a lot from Sony and Mitsubishi but actually didnt instead they became complacent when people started telling that these were the chaebols to take on the world ..atleast daewoo became arrogant even before achieving anything really big.
Basically all these boil down to the culture of the society in which the business operates ..which in turn is more or less reflected in the companys work culture also..the culture of Toyota in Blore will be different compared to the culture of Toyota at Tokyo .....though at the top level all vision and mission statements will be the same.
Joined: 29/Dec/2007
Location: India
Online Status: Offline
Posts: 1283
Posted: 11/Mar/2008 at 10:17am
Other important points ...great companies are built on the visions of a few people at the top ...its like 10% of the people drive 90% of the business.As companies grow or top management keep changing the same zeal,vision , enterpreunial spirit may not get passed on to the next set of leaders. This is very crucial I feel.
You cannot post new topics in this forum You cannot reply to topics in this forum You cannot delete your posts in this forum You cannot edit your posts in this forum You cannot create polls in this forum You cannot vote in polls in this forum
Here's why members would love to be a part of theequitydesk.com
Equity Desk focuses on why to buy shares and invest in share rather than what to buy.
Live discussion forum wherein members can discuss the current Indian share Market trend,
BSE Sensex or the Nifty Index.
Have huge cache of information on Indian and World Share Market.
Analysis of Indian stock market, Global events, Investing insights, portfolio
management strategies and thoughts,
Meet investors from round the globe check their investing strategies share experiences and learn
for their experiences on stocks and shares, evaluate opinions on investing in India.
Active Topics
Memberlist
Calendar
Search
Help
Register
Login
IP Logged
