Wednesday, August 25, 2010

Why Do Businesses and Leaders Fail?

I hate the term “soft skills”. To me, it’s a weak and misleading label that attempts to categorize everything that really matters about leadership and business success into a bucket of fluff. Any leadership development professional should know better.

Given that, I know it’s a common term used by every day people. It’s because they don’t know what else to call “it” or how to define that stuff that seems to separate the haves and have nots.

When I was first learning about competency modeling, I’ll never forget what a consultant said to me that underscored the importance of the “soft stuff”.

We were in the process of building a leadership competency model and curriculum for a former company. At the time, we were having a debate about having a balance between the “hard” stuff – things like marketing, finance, operations, sales, industry experience, etc… and the “soft” stuff (listening, peer relationships, composure, vision, etc…). Our executives were leaning towards the second - the traditional MBA topic list of functional management skills.

The consultant asked our executive team: “Name one business that ever failed because of a lack of functional or technical expertise”.

You could hear crickets chirping for a few minutes – we couldn’t. That was almost 20 years ago, so that consultant was way ahead of the conventional wisdom at that time. Think about the recent challenges of some of our great car companies and banks. It sure wasn't due to a lack of engineering or financial expertise.

Fast forward to today: Jim Collins, in his book “How the Mighty Fall” spent four years researching how once great companies failed. He developed a five-stage model that describes the stages that each of these companies went though. They are:

1. Hubris born of success. Great companies can become insulated by success. People become arrogant, regarding success as an entitlement, and they lose sight of what made them successful in the first place.

2. Undisciplined pursuit of more. Companies stray from what led them to greatness in the first place and make undisciplined moves into areas where they can’t succeed.

3. Denial of risk and peril. Leaders discount negative data, amplify positive data, and post a positive spin on ambiguous data. They start to blame external factors rather than accept responsibility.

4. Grasping for salvation. They start looking for that “silver bullet” solution.

5. Capitulation to irrelevance or death. Turn out the lights, the fat lady is singing.

Collin’s recent work certainly supports the declaration made 20 years ago by my consultant friend – that organizations don’t fail because of a lack of technical, functional, or business skills – it’s always because of some kind of collective destructive mindset and behaviors.

The same is true for individual leaders.

The Center for Creative Leadership and Lominger has identified the following (through extensive research) as being executive “derailers” (I’ve combined elements of their research):

- Unable to adapt to differences
- Overly ambitious
- Arrogance
- Blocked personal learner
- Defensiveness
- Insensitive to others
- Non-strategic
- Failure to build a team
- Lack of composure
- Lack of ethics and values

Finally, in his groundbreaking research (200 large global companies) on “emotional intelligence” Daniel Goleman found the following components to be the biggest differentiators between leadership success and failure:

- Self-awareness
- Self-regulation (controlling your emotions)
- Motivation
- Empathy
- Social skills

Wow, all of this soft, squishy, touchy feely stuff….. hubris, denial, insensitivity, empathy – sounds more like an episode from the Dr. Phil show than what’s taught in most business schools these days.

To be fair, I’m not sure this kind of stuff can even be taught in a college course or training program. According to Goleman, emotional intelligence increases with age – it’s called “maturity”. That doesn’t mean “the right stuff” can’t be developed – it’s just going to take a different approach. Aspiring leaders need to know what to do and not do, be exposed to positive roles models, get opportunities to practice and get behavioral feedback, and perhaps even have access to some professional coaching.

We can, however, incorporate this “right stuff” into our competency models or hiring profiles for selection and promotion. There are even 360 assessments and behavioral assessments that have been validated to measure these factors.

So what should you take away from all this?

1. Understand what really matters when it comes to business and leadership success.
2. Get feedback (early in your career or when your business is doing great, before it’s too late).

3. Never give in - take action to improve. If companies or individuals heed the early warning signs of failure, they can usually take action to prevent it.

Note: Many thanks to GL reader and manager Jon Housknecht (@WSTheHouse), for bringing the Goleman article “What Makes a Leader” to my attention and inspiring this post.


Anonymous said...

Excellent post, Dan! Those five steps towards oblivion remind me of the trap that lies in Roger Martin's "Knowledge Funnel." Like an avalanche, a blind obsession with increasing profit via algorithmic efficiency and scale can easily lead one to keep shaving away more and more those very attributes and behaviors that would have kept you from starting that slide down the hill in the first place.


Unknown said...

Being new both to the professional business world and to blogs, posts, and other networking and teaching/learning information online I would like to say that I found your post very interesting, insightful and knowledgeable. Because of my lack of business experience and only recent exposure into an MBA degree I can relate a business failing to a professional sports team downfall after winning a championship and how hubris and denial coupled with steps 4, and 5 do bring down a once great organization. However I disagree with Step two, undisciplined pursuit of more, or do I agree? Toyota at a time when much was to be had in the petroleum based fuels led the way for hybrid vehicles creating the ever so popular prius which is only helping their business to explode. However there is the sticking electronic gas pedal which injures/kills people. So I guess time will only tell if Step two is true. Another question I have and still pertaining to the auto industry is the downfall of GM and others in which these companies were in need of a government bailout. Is the reason they failed due to the "hard stuff" or am I incorrect? As for the closing take away remarks I completely agree and do believe in your insight that aspiring leaders do need to see examples of the "right" and "wrong." Going back to the football and sports theme, how would the coaches of today be successful without witnessing the Lombardis of the past? You are correct Mr. McCarthy.


davidburkus said...

Great post. A good take on Collins' new book. I must confess, I sped through it too fast. I need to pick it up again.

dan said...

I really liked this post Dan. Just to inform you this is my first offical comment on a post/blog site. As a first year MBA student the strongest correlation I find between a sucessful organized business and an individual employee is step number three. An individual that is used to sucess and is an intellegent human will mostly likely become defensive minded and point the finger at other people/issues rather than look internal and accept that maybe he/she was wrong and needs to improve in that certain area. As for what Goleman says I certainly agree, however unless you can take responsibility for your own actions/mistakes you will never be able to learn effectivly and just being motivated is not enough to become a sucessful leader.

thanks- dan z

Sachin Verma said...

I found this posting very interesting. The vision and trend of this post seems to become more and more popular everyday. A company or individual may look great on paper but could still fail to be a functional business. The same way that a 3.0 GPA student may be a much better employee then a 4.0 GPA student. In my opinion it comes down to social skills and ethics. It's pretty clear to me that many of these monster companies went down due a to a significant lack of ethics. The five stage model says it all. The individuals reaping the benefits of these companies did not build them. Instead they arrived with success served on a silver platter. Just as the stages describe, the companies have never been unsuccessful and have a hell of a time accepting it.
The 5th stage takes the cake for me. All I picture is a couple GM execs relaxing in their private jet while their company goes bankrupt. well guess what fellas, the fat lady is singing and a uncomfortable coach seat is calling your name!
I couldn't agree more that we must all adapt to a changing world whether we like it or not...

Jon Housknecht said...

Excellent post, Dan! You represented the article/book well.

Thanks so much for the mention as well.

Keep on rockin' the GL Blog!

Dan McCarthy said...

Mark –

Alex –
I think there’s a lot of good comparisons between sports teams and businesses – after all, they are both organizations that are managed for the purpose of winning, right? Your Toyota example is a good one. Yes, the sticking petal was a mechanical failure – all company have occasional defects. The difference is about how they are handled. Compare the way J&J handled the Tylenol scare and the recent BP mess.

David –
Thanks. I did too, it’s such an easy read.

Dan –
Thanks. Yes, it’s hard to hear feedback – our natural “fight or flight” mechanisms tend to kick in and reject it.

Sachin –
Thanks. Right, maybe we need a GPA for EQ? (-:

Jon –
Thanks again for pointing it out!

Julie-Ann said...

Dan, you offer tremendous insight into why companies and their leaders fail. All too often, companies or managers become a little too big (ego wise) for their own good. When they do, they lose sight of what’s important. Those “soft skills” and a little humility can go a long way. As any successful manager will point out, success comes from customers. When they are treated right all the time, loyalty grows. Companies that want to do well might benefit from the advice offered in this article,

Barista Uno said...

Interesting insights. They actually bring to mind certain companies and executives.

ESchwarzrock said...

"Soft skills" are too often the political horsepower that move individuals up the corporate ladder, but not necessarily for the best reasons. Soft skills are important to great leadership but are they ‘everything that really matters’ to great leadership, no. You need a combination of both skills. I believe that Ken Lay had great ‘soft skills’ but without the hard skills the business will eventually fail. I agree that ‘soft skills’ should not be labeled as ‘soft’ and they are a key factor to great leadership and sustainability but how can you claim that it’s ‘everything that really matters’?


Mitch said...

Maybe I'm missing it, or it's contained in one of the other options, but the lack of knowing how to lead others has to be somewhere in this list. When we realize that many people put into leadership positions have never led anything in their lives, and thus have no idea where to start, it highlights a major concern that needs to be addressed as well.

Mike Lipkowitz said...

Dan, I found your post very interesting and insightful. This is the first time I have heard the term “soft skills” before. I have always been familiar with these attributes (peer relationships, communication, composure…) and the necessity of acquiring them to become an effective leader, but I have never heard it label. I agree these “soft skills” are an essential part to developing a strong business, but I believe “hard skills” are just as important. Even though, as a manger, you may not deal with these “hard skills” directly, the people you over see do. Without the “hard skills” as a backbone there would be no foundation for the “soft skills” to be developed. I believe it takes a combination of the two to become a successful leader.

Dan McCarthy said...

Barista -

Eric -
Ken Lay was great at all of the attributes I listed? Really? So if those things are not what really matter (even if you ignore the studies and research) - what does?
I'm not saying functional and techincal skills, and industry experience are not at all important- but they are not differentiators.

Mitch -
Yes, just about all of the things mentioned are important elements of leadership.

Mike -
Thanks. Yes, both are important. The higher you rise, the less important your technical skills become.

Kevin W. Grossman said...

Right on the money, Dan. You can't separate the human from the hard skills -- the right stuff as you put it. You can, however, measure and develop emotional intelligence. The body of research is growing and assessments such as the Emotional Quotient Inventory (EQ-i®) have been validated and programs can be put into place to build the EI muscle.