Daily News: February 25, 2014

Turnaround Management Survey: Why Companies Fail

Dr. Christoph Lymbersky executive director of the Turnaround Management Society (TMS) asked 405 turnaround managers and restructuring experts about what factors lead to corporate crises. The 2014 TMS survey highlights the internal and external causes that corporate restructuring specialists have witnessed in their assignments over the last five years.

According to the 2014 “Why do Companies Fail” survey almost 88% of respondents held top management responsible for a crisis situation, and 30.3% blamed middle management. The most commonly cited reason was corporate strategy (45.5%) followed by internal communications (30.2%), marketing (24.3%), sales (24.2%) and customer service (15.2%).

The survey highlights five prominent problem areas:

1. Internal Communication

In almost a third of all situations, insufficient internal communication played a big part in fostering the crisis. Often the management does not communicate much once a crisis becomes obvious, or the communication is not clear enough. According to the survey a common mistake seems to be that the management plays down the severity of the crisis, or even communicates that everything is okay, while working on job cuts and salary reductions in the background.

2. The Educational Background of the Management

A third (30.3%) of all turnaround consultants found that the management of the company was not very well educated in business matters.

3. The company’s Product/Market Mix

Expansion of an existing product line is not always a success and can lead to a corporate crisis (21.2%). In other cases, investment into future products and technologies was, over the years, not enough (18.2%), leading to missed technological advances to reduce production costs, a lack of features, or new technologies that competitors can provide.

4. Corporate Finance

Quite high up on the list of causes of crises in the questionnaire were liquidity and cash flow problems (27.63%), which are often caused by insufficient controlling and accounting processes (21.2%) and no or inappropriate financial planning (15.2%).

5. Human Resources

No goals or wrong goals for the workforce (15.1%) often contribute to poor performance by employees and accelerate a crisis situation. Setting no goals is as ineffective as too many goals. An employee can only spend so much time on something they are supposed to focus on. If too many goals are set some of them will suffer, or the quality of the work will decrease.

The TMS also compared the internal causes over a timeline of 38 years. The comparison shows for example that the lack of financial control is becoming less and less relevant as a crisis factor. In 1984 inadequate financial control still contributed to 75% of all corporate crises. Today, in the 2014 Turnaround Management Society survey, only 36% reported this to be a cause of decline.

To read the entire Turnaround Management Society press release, click here.