Why Do Large Once-Successful Companies Fail?

Why do large companies fail? The reasons are numerous; the world and its problems are more complex than ever. In this article, we examine three key factors - leadership, financial and differentiation.
Date posted
1 July 2021
Reading time
5 minutes

Why do large companies fail? The reasons are numerous; the world and its problems are more complex than ever. In this article, we examine three key factors - leadership, financial and differentiation.

Many large companies have failed. Some have gone bankrupt; others have substantially reduced in size and fallen from an industry leadership position. What caused their downfall, and what lessons have we learnt?

The world has changed dramatically since many well-known and trusted 'rocks' of business were born. However, reinvention, improvement, and the ability to disrupt the market is required at such a rate that many companies can't keep up.

Leadership, Finance & Differentiation

Are the habits and traits which built such mighty empires still relevant today? The mechanism and people behind the business create the failure to keep up. This article examines three key areas: Leadership, Financial and Differentiation Factors.

Some failed enterprises took years to hit the iceberg. They had already manoeuvred around several icebergs, but ultimately, even millions of pounds of cash injection couldn’t save them from sinking.

Avoiding the icefield in the first place is the answer, with continuous new ways of thinking that aren’t just about avoidance, but also about the ability to drive directional change.

It's not only about steering the ship around the iceberg but about questioning the whole scenario. Why are we on a ship, and where are we heading?

Let's look at leadership in the first instance.

 

1. Leadership Factors

Leadership Failures

Businesses fail because of poor leadership. The leadership must make the right decisions most of the time, from financial management to employee management. Leadership failures will trickle down to every aspect of your business; with businesses becoming ever more complex, how do we know that leaders make the 'right' decisions? Experience, of course, but knowledge is based on historical findings. In a daily changing business landscape, success or failure can come down to analytics, which helps to drive informed decision making.

Lack of Focus

Without focus, businesses can lose competitive edge. In addition, as companies grow, they add more products and services to the portfolio, making the offering increasingly confusing. Focus is the art of limiting your scope to the key area that matters for most customers.

Inability to Learn from Failure

We all know that failure is usually bad, yet it is rare that businesses learn from failure. Realistically, companies fail for multiple reasons. Often business leaders are oblivious about their mistakes. As a result, learning from failure can be difficult.

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Underinvestment in Technology

All businesses should continually be reinvesting in themselves, and this is especially true to tech improvements. New technology generally allows for greater productivity, efficiency, and can provide a competitive edge over your competition.

Poor Management

Examples of poor management include an inability to listen, micro-management and lack of trust, working without standards or systems, poor communication and lack of feedback.

2. Financial Factors

Lack of Planning

Businesses fail because of the lack of short- and long-term planning. Planning should include where you want your business to be in the next few years with measurable goals and results. The right strategy will consist of specific to-do lists with dates and deadlines. Failure to plan will damage your business.

Lack of Capital

Lack of capital is an alarming sign and can lead to an inability to attract investors. It shows that a business might not pay its bills, loans, and other financial commitments, making it more difficult to grow the company, and this may jeopardise day-to-day operations.

Mounting Depts and Pension Deficit

Spiralling debts and a huge pension deficit often signal the extent of the damage.

Premature Scaling and Overexpansion

Scaling is a good thing if it is done at the right time. To put it simply, if you scale your business prematurely, you will destroy it. For example, you could be hiring too many people or spending too much budget on marketing. It is easy to make the mistake of expanding a business into too many verticals. Before you enter new markets, make sure you maximise your existing market.

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Lack of Profit

Keeping your eyes on profitability at all times is essential, as profit allows for growth.

Poor Financial Management

Having complete visibility and a deep understanding of an organisation's finances and responding to constant change is critical. Poor financial management is why many big businesses fail. Poor decisions are driven by 'gut feelings' rather than sophisticated modelling and analysis - steering many large companies on the path to destruction. Organisations need to rely on numbers in a rapidly changing market so that they can respond fast. Modern cloud-based financial planning software Workday Adaptive Planning is one solution.

3. Differentiation Factor

Unique Value Proposition

It is not enough to have a great product. You also must develop a unique value proposition. Without it, you will get lost in the competition. What sets your business apart from the competition? What makes your business unique? It is essential to understand what your competitors do better than you. If you fail to differentiate, you will fail to build a brand.

Market Disruption

Disrupt or die may sound dramatic, but the competition is fierce. The number of private start-up companies is rapidly growing. If there isn't a start-up disruptor in your industry today, there soon will be. If you don't disrupt, you are likely to be disrupted. Once a disrupter has a foothold, they seek to penetrate the medium and a higher quality portion to increase profit margins. Eventually, the disrupter will challenge the most profitable part of the sector by offering a new alternative to the established market favourite.

Competition

You provide quality products and services to your customers, and that's great, but have you forgotten something? While your organisation is excellent at what it does, it's unlikely to be alone. Competition is growing and can surprise you at any time. It's essential to pay attention to what they're doing.

Ignoring Customer Needs

Every business will tell you that the customer is #1, but only a tiny percentage acts that way. Keep an eye on the trending values of your customers. Find out if they still love your products. Do they want new features? What are they saying? Are you listening?

 

Lessons to Learn

Understanding these three factors is essential to ensure that your company is not the next headline in the news. Fundamentally, leadership has the most significant impact on an organisation as it is from this that all decisions are made for the short, medium, and long term.

So how can finance leaders make better decisions and be more effective?

To ensure more effective decision making in a rapidly changing environment, forward-thinking finance professionals are now implementing cloud planning software Workday Adaptive Planning for their forecasting, budgeting, analysis, and reporting.

Find out more by reading some of our recent customer success stories.